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Boosting Performance through Knowledge Diffusion

Knowledge diffusion from high-performing employees to other employees is key in ensuring a firm’s continued performance improvement. The best way for a manager to ensure this knowledge flow is to provide structured opportunities for interaction between employees where they can discuss issues and tactics in the context of work. Managers can also take steps to reduce challenges faced by employees in approaching high-performing co-workers to facilitate such conversations.

Knowledge about how to perform a job is critical to performance and can lead to

substantially better performance. However, significant differences between the performances of highly competent employees and other employees suggest a gap in knowledge diffusion in firms. If this gap can be bridged by ensuring smooth job-related knowledge flow, firms’ overall performance can improve. A study based on a field experiment in a sales firm tries to answer the question: Which management practices encourage knowledge diffusion?

The study compared two possible ways of increasing sales: structured conversations about

sales techniques and incentives for joint output increase. It found that while both options pushed up sales during the period of the experiment, only the structured discussions led to continued sales growth beyond the duration of the experiment. Furthermore, even when a combination of the two methods was used, only the discussions bore fruit in the longer term.

The study concluded that managerial interventions that provide systematic and structured opportunities for workers to have conversations offer the best opportunities for knowledge

sharing within firms. Such interventions work because they help employees overcome “initiation costs” or challenges to knowledge-gathering interactions. Initiation costs are faced by knowledge-seeking workers and can include social concerns like reluctance to approach unfamiliar co-workers, coordination difficulties like matching schedules or fixing meetings and search frictions like knowing whom to ask.

Interestingly, structured discussions for knowledge exchange provide the maximum benefits

when employees are partnered with high-performing co-workers. This is true for both low-performing and high-performing employees. Overall, knowledge sharing led to a performance increase of 24% during the intervention and of 18% - 21% in the long run. Merely providing incentives did not boost performance, as incentives alone were not enough for low-performing employees to overcome their initiation costs.

The boost to sales is further heightened when the structured discussions focus on contextual

knowledge on improving performance. For example, when co-workers discuss specific situations they might face when dealing with difficult clients and what tactics work the best in such situations. High-performing employees can share their knowledge of such tactics with co-workers, who can then use the same tactics to improve their own performance, leading to an overall increase in the firm’s performance.

This study has some significant insights for managers regarding knowledge transfer within firms. Firstly, managers should encourage conversations between employees regarding how

to do the work better. Since these discussions might not be feasible during informal conversations, managers can facilitate formal, structured discussions where tactics and issues specific to the work requirements are discussed by employees. During such meetings, it is crucial to focus on actual actions that can be taken rather than generalised supportive statements like “be positive” or “stay the course”.

Secondly, managers can build a culture of knowledge sharing by actively taking steps to

reduce initiation costs. To do so, they can inform employees about the high performers, encourage other employees to meet and ask them for help through mentorships, training, or other human resource development platforms, or arrange special interactions for facilitating such interactions. Reducing the social costs of employee communication can lead to significant benefits for firms.

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