Start-ups have been able to pursue this strategy successfully because they can make decisions and dominate a market quickly. They do not have the multi-level decision structures of larger companies, which slow them down. They are also expected to lose money early on, so they are not handicapped by requirements for profitability.

One key aspect of start-up culture is that all employees, and especially the key participants, are rewarded with an equity stake. In many cases, the companies fail and the options become worthless. But if the company is successful, there are disproportionately large rewards for the early-stage people and other key participants who helped the organization grow and created shareholder value.

Early-stage companies also have a voracious appetite for personnel. It is quite common to see them growing at over 100% per quarter in terms of personnel, financed by continuing rounds of venture funding.

They are able to attract employees because there is an extraordinary level of commitment and fun in these organizations, as long as things are going well. People get to interact directly with the company founder. There is a sense that every decision you make is having a major impact on the future of the organization. And people get directly rewarded for the ultimate success of the business, through their stock options.

Early-stage companies don't make money from selling goods and services. They get money from investors in order to expand market share. If they cannot continue to make progress, they cannot persuade investors to put more money in, so they die immediately. And as soon as there is an indication that things are turning down, people flee. Their skills are all incredibly portable, so they can go work for another start-up right away.

Good entrepreneurs are the ones who know a bunch of people with money, have phenomenal amounts of energy, have some sort of burning vision that they want to create, and are able to persuade other people to buy into their vision. The other entrepreneurs are the ones who really want to make a whole lot of money. They tend not to do very well, in spite of their financial motivation.

There are a few implications for larger companies in dealing with the start-up culture.

1. It is not possible for large companies to provide their employees with as much upside potential as these early-stage companies.

2. Large companies can almost always provide a much greater degree of security.

3. If you are in partnerships or joint ventures with early-stage companies where your employees are interacting with their employees, there is a huge risk that your employees will leave. The exposure gives your employees much more comfort with the early-stage company because they know the people and the business, so it feels safer to take the risk. So, if you are dealing with an early-stage company that has lots of access to your employees, you should routinely include in your contracts with them a non-solicitation clause (which says that they won't solicit your employees) and a non-hire clause (which says they won't hire your employees).

4. You should also consider taking equity positions in these early-stage companies if you are a customer or a vendor. By doing business with them, your name and reputation enables them to attract other customers and vendors. You should consider sharing in the profits that your involvement helps to generate. Also consider exploiting business opportunities through subsidiaries, joint ventures or strategic alliances designed to follow the early-stage business market.

BREAKTHROUGH TECHNOLOGY
Presented by Dr. Paul Wright, A. Martin Berlin Chair in Mechanical Engineering, University of California, Berkeley

Dr. Wright's presentation focused on technology to support knowledge-intensive products. Today, the knowledge that goes into a product is much more valuable than the physical product itself. So, it is important for companies to find the most efficient way to capture and use the knowledge that resides in their employees and their databases.

Dr. Wright has been working with Ford to try and get more knowledge integrated very quickly into their product development process. He has developed software that captures the knowledge of employees at all levels in the system. The software tries to emulate a silver-haired machinist (an "inter-firm knowledge agent") looking over the designer's shoulder as he is doing the design work. Specifically, they have access to the lighting databases that exist all through Ford Motor Company and their suppliers. This prevents the designers from creating something that can't readily be manufactured by building in information about standard manufacturing capabilities. It saves Ford both time and money, and integrates knowledge in the system.

He has also modified the designer's software now so that the designer is not allowed to design with complete freedom. He or she is going to pick out a part in the new system that has some similarity with old parts. This enables the company to reuse some of the tooling from prior parts, which saves money downstream in the manufacturing process.

In addition, the software has the government regulations for brightness (lumens) built in, so the designer can match the style of the car to where the headlamp beam is going to be fanning out and verify that the regulations are being met.

The next area for work is "tacit knowledge." It goes beyond intellectual property to organizational know-how, relationships with customers and suppliers, working effectively with people in different time zones, different cultures, etc. It goes beyond just having efficiently organized data. Dr. Wright is looking for ways to see how his work can be expanded to codify this tacit dimension. "Tacit knowledge" is what gets the technical knowledge packaged and used, and it is a much more difficult area.

Tacit knowledge is embedded in groups of people who work together effectively - their processes and relationships. It is also in key individuals who serve as "gatekeepers" or "translators" ("internal knowledge brokers") in the system. These people have good listening and people skills, and they know how to get things done in the system. Those are very important people, and in most organizations, there are only a few of them around. We need to hang on to them and learn how they do what they do.

THE HUMAN IMPACT OF CONTEMPORARY BUSINESS PRACTICES
Presented by Dr. Maureen O'Hara, President, Saybrook Graduate School and Research Institute

Dr. O'Hara discussed the psychological impacts of what is going on in the macro level of culture, and particularly what seems to be an unexamined element of the social transformation that we are experiencing now.

We are probably going through the most massive cultural turbulence on a global scale that has ever faced humanity. This is an unprecedented period of destabilization -- economic, technological, demographic and cultural changes that are probably with us for the long haul ?? centuries and centuries. No matter who or where you are, you are equally affected by the levels of transformation that we're dealing with.

Great upheavals have taken place before. In the Renaissance there was a shift in consciousness from a pre-modernist kind of psyche to a modernist psyche. But along with that change, which brought about a complete reorganization of cultures, there were also 300 years of the most violent mayhem in European history. And for the people on the ground living through that, it didn't feel much like a Renaissance. It felt bewildering, confusing and bad. Their lives were brutal and short.

We are now in that level of cultural transformation. Do we really know what we're going to need to be able to go through this period with something like a humane society?

Ordinary people these days constantly deal with issues like diversity, work-life balance, changing rules, capacity gaps, overwork, relocation, uncertainty, change of values, gender gap, compliance, entrepreneurialism, race issues, everything speeding up, paradigm shift, etc. And the focus is often on how the person in the middle will be able to function optimally on the job, at home, and as a citizen. It is an exhausting set of expectations.

Most of this is coming about because of changes that the individual has very little opportunity to impact - changes like technology; the fragmentation and integration going on at the same time; the globalization of everything; and also population growth, commuting, congestion, environmental degradation, the complexity of everybody's ordinary life.

Human mental capacity and the structure of our neurological apparatus evolved at a time when most of us were living in the community with no more than about 50 people. We knew those people more or less for a lifetime, and the kinds of psychological contracts that we had to navigate and negotiate were relatively simple. Today the level and the scale that we all live produce a psychological situation known as the "saturated self." Many of us, in the course of the day, have to deal with emails, voice mail, cell phone, television, newspapers, conversation with colleagues, conversation with people at home, and yet we have the same neurological equipment as that of our ancestors.

Additionally, the world that we've created through all these macro changes can no longer be navigated by the kinds of mental maps, by the kinds of behavior routines most of our socialization systems were designed to produce. Our early patterning in childhood and in schools is all within institutions that were designed to create a different kind of person (e.g., linear thinking) than what we have to be to live in the current context (e.g., multiple, holistic, ever-changing). We need a more fuzzy logic, situational, contextual way of thinking and different ways in perceiving in the world.

So, the context in which each of us has to develop a coherent identity and a coherent sense of the rules of the psychological game and the social system has radically changed. In a sense, we're all now refugees, going through the same psychological experience that an immigrant or a refugee has. The world that we know how to navigate is no longer here and another world is being created that is alien to us. But the difference for us at this point in history is that there are no natives of this new culture to show us the ropes.

This situation is extremely anxiety provoking for us. In an anxiety-provoking situation, arousal goes up, adrenaline levels go up and we are existing at a higher level of psychological tension. At least three identifiable sets of behavior are occurring right now in response to this situation, both at the personal level and at the systems level. One response is resistance, a second is breakdown and a third is growth.

1. Resistance. When we find that anxiety is too much to handle, we have certain psychological routines that we can quickly slip into as defenses. These routines help us to control the anxiety, and that's pretty healthy. But if those anxiety biomechanisms become habitual and automatic, what you're essentially doing is building up a neurotic system. These resistant mechanisms are trying to shut down the amount of new information that is coming at you, to keep it manageable so that the anxiety is not overwhelming and incapacitating.

Groups also have resistant patterns. Typical group responses are to control or suppress information, to redefine boundaries (us vs. them), to bureaucratize, and so on.

2. Breakdown. If you can't resist but you don't have enough support in the system to do something positive with this level of anxiety, another alternative is the breakdown. This is total disintegration. Yugoslavia is an example where the breakdown could not be contained societally. You also see this is in the fragmentation of groups when something hits a group that it can't integrate into its process and there's complete incoherence.

3. Growth. It is also possible for individuals and groups to shift high anxiety upwards to incorporate the new ideas and information into higher orders of complexities, into higher orders of routine, and have a growth step. If the group can find ways to bind the anxiety, to channel it into creative action, then there's a possibility of a leap forward in the capacity of that system to carry the level of information that is being made available.

There is no way to predict -- whether it is an individual crisis, a small group crisis, or a large societal crisis -- whether the outcome of that crisis is going to be a defensive repression of the novelty, a catastrophic breakdown, or a growth transformation process.

There is a lot of evidence that we are seeing severe pathological responses to the culture that we've created, and that the negative responses are already costing us a great deal. In a report issued by the United Nations, the level of mental health problems worldwide was quite staggering. They report that one in ten workers worldwide is suffering from identifiable psychological complaints, including depression, anxiety, burn-out, and more significant psychological diagnoses. In the European Union they estimate that they are spending almost four percent of their GNP on the treatment of psychological problems. They are identifying workplace changes (mobility, overwork, the capacity-gap between what we expect people to be able to do and what they can actually do, and the lack of training and support to overcome the capacity gap) as the principal sources of these mental health issues. The psychological load that we're all carrying to live through the times that we have created is more than many of us can handle.

When you look at the lists of core competencies for middle managers in large organizations, taken as a whole, the only one that is missing is "walks on water." It would require a quite rare level of mental sophistication for an individual to be able to actually function at the levels as they are described. According to analyses done by psychologists, just three percent of the population has that level of mental sophistication. So we have large numbers of people whose work performance evaluations are being done, on an annual basis, comparing them to a scale of expectations that only about three percent of the population can actually accomplish.

In a sense. all of us are over our heads most of the time. In a world where knowledge is the value-added, and where being able to function at these very high levels is important, having most of your people under psychological stress is going to detract from the capacities of your workforce to actually produce at the level you want them to.

What are the psychological conditions in an organization for optimal creativity? The conditions in an early start up fit the bill. There's a lot of excitement, there's a lot of anxiety, but there's also a lot of camaraderie and a sense of optimism about the future. That changes as the company grows and matures. At that point you can see major psychological reversals. These young dot-commers are going into therapy and taking drugs to deal with their anxiety, their sleeplessness, their cocaine addictions, their alcohol addictions, that they are becoming psychological as well as economic casualties.

Over the last decade the funding for mental health benefits has dropped by 50%. Health care benefits in general, by contrast, dropped by about 11%. So, we're putting people in the pressure cooker, we're pumping up the stress and tension, which could potentially create the conditions for break-out innovation, but at the same time we're withdrawing from many of them the psychological support systems that people need to stay at a cutting-edge level.

When you hear about mergers you often hear that management cherry-picks the best performers from the different groups and creates new teams of strangers. People have to get to know each other before they can be creative and productive. We give the people exactly the worst psychological conditions in which to be innovative and bold and take the kinds of organizational risks that we're asking them to do.

So the organization has to feed into its calculus for improved productivity not only software design and workflow design, but also the kind of psychological conditions that will be needed if we're really going to try to keep people at their growing edge. That includes EAPs, stress-reduction workshops, work-life programs and all of the other ways you can support people in the workplace. You also need to have people in the organization who are skilled at dealing with people's stress, confusion and bewilderment, all of which are normal, understandable, and predictable. The bright companies are also building in the conditions that will permit people to psychologically get outside their own routines, to get into new patterns of mind and into new emotional states so that they're at their own psychological growing-edge. What is important about scenario playing, simulation games, future search programs, is not so much the nice glossy strategic plan that you get at the end of it. It is the process that people went through together, in their team, learning how to learn at their own edge, how to manage the anxiety. It is also a step toward helping people develop the new kinds of minds we need -- creative and competitive and multiple and complex and empathic and grounded and self-starting, and able to control one's own emotions.

For all of us who are in the human fields, the research agenda for us for the next hundred years is going to be: "What kind of socialization systems of higher organizations, structure, and so on do we need to invent to keep people on the growing edge without being so far over the edge that we're incapacitated by the levels of mental health problems that we currently see people developing?"

PANEL DISCUSSION
(Panel: Dean Gloster, Paul Wright and Maureen O'Hara)

Mr. Gloster: The topic that links all three presentations this morning is, "How does a large organization, which may buy or absorb a smaller organization, 1) create the kind of culture to keep people creative, happy, motivated, dynamic and productive; and 2) figure out a way to mine their knowledge?

Dr. Wright: I think about it in terms of what I try and do to make the newcomers in my lab feel healthy? Here is what I do:

1. Assign them a mentor to help them learn the ropes, someone they will be comfortable with.
2. Initially, give them small projects where they can experience success before setting them more challenging tasks. I try to give them a mini-project, but also, something that slots right into our supply chain, so they don't feel overwhelmed and yet they feel useful and they also see the bigger picture because they're a little link in this chain.
3. I also think that anything you make people feel like they're in a family is going to make them feel more stable. So we try and create a family lab where we have lunches together and this mentoring system.

Dr. O'Hara: I just want say that some of the very things that we do to help people feel connected and be part of the community have a downside. When folks feel that they're part of the family and integrated into the culture and their identity is very much tied up with the company, if they are separated from the company, that separation can be unbearable. The folks who are likely to get violent against their co-workers or against people in the company are people whose sense of belonging to the company is being violated or being severed. And so learning how to manage an exit strategy for these kinds of folks is very important.

Audience Question: What causes people to have anxieties; how do we notice them; and how do we help them?

Dr. O'Hara: What causes anxiety is threat. It's the sense that that we are vulnerable; that there's something in front of us that we don't know how to deal with. So it's a fear response. And the fear response can be realistic or it can be a fantasy feeling. They're afraid for their security. They're afraid for their well being. They're interpersonally afraid and they're afraid as a human being, in the sense that a coherent identity, knowing who you are, is a part of what we need to be psychologically calm.

In changing environments, it's very difficult to have that sense of a coherent identity. Identity is not something you're born with -- it's something you achieve through constant negotiation with the world. So if your world is changing so rapidly that the fixed points of identity formation keep being moved, then it's not possible to arrive at a place where you can say, "I know who I am and know what to do in order to be safe."

At a gross level, that's the cause of the anxiety. As I said, it's as if we're all immigrants, all the time, and we're always trying to orient to a new situation.

RECRUITMENT AND RETENTION
(Presented by Kevin Wheeler, Principal, Global Learning Resources)

Mr. Wheeler focused on the challenges of finding, hiring and retaining people.

The current war for talent is driven by the rapid growth in the economy, with the e?commerce and the Internet driving it, partnered with the expansionist policies on the part of most governments and the dropping of trade barriers throughout the world. So, people, as well as ideas and things, flow much more smoothly and easily across boundaries today. This has resulted in an era of essentially full employment. In some fields, like software engineering, there are not enough people to fill the jobs.

Very few people are looking for work -- less than 9% according to a recent survey. So we're all recruiting the same nine percent of the population. Thirty-five percent of the people in this survey said they were open to a job change if somebody approached them and twisted their arms a little. But 56% were not even open to a change. They were fundamentally happy where they were.

Today people can work together from anywhere on the globe. If you look at small start?up companies in the Silicon Valley, they're all "webified" in the way they work. Their people live everywhere. I know of one firm that has two employees in the United States. Everybody else is in India, Australia, and the UK.

People who generally worked and were happy in the 20th century pyramids were primarily focused on security, consistency and predictability. That's what made their lives good. There's a new generation emerging that doesn't care about that stuff, they want to travel globally, delay kids, maybe not have a house, etc.

Most of the western world has a negative birth rate, which means that we're actually shrinking in our population. The only reason the United States isn't suffering a decline in its population is because of immigration. So the workforce is much more diverse.

And we're living longer, so the median age is going up. It's going to be around 50 by 2050. So there's going to be a lot of old people and not a whole lot of young people, which totally changes recruiting strategy, the way work is organized, etc.

UC San Francisco did a study last year of jobs in California. Sixty-seven percent do not hold traditional jobs. A traditional job is defined as Monday through Friday, 8:00 to 5:00. Only 49% work a 35? to 40?hour week; and 18% work less than 18 hours a week. Interestingly, the higher your education or professional level, the more you worked. Also, 80% of the new jobs being created are non-standard.

So we have a change in work patterns, changing lifestyles, a vibrant economy and a declining population base. What do we need to do to recruit effectively in this environment?

Be Marketers and Sales People
Recruiters today have to be primarily marketers and sales people. You have to brand and differentiate your company in order to attract people to it. Then you've got to convince people to come work for you - give them a compelling reason.

The more you offer candidates, the greater your perceived value is today. Value comes from knowledge and service, it comes from communication. The more you help them learn and understand what the job is about, what they're required to do or what it's like to work in your company, the more success you'll have.

Mass Customize
We need to start thinking in terms of mass customization. All recruiting is one on one. We are no longer recruiting to masses. We are recruiting to individuals. Everybody wants a unique offer; they want a unique job description; they want to understand how they uniquely add value to your company. So you've got to personalize things.

Create an Extremely Fast Process
You've got to eliminate all the constraints to efficiency and speed within the organization, all the time consuming roadblocks that slow the process. Speed of hire is essential.

Everybody expects instant interactivity. I send my resume in; I indicate some interest in your company; I should get something back instantly. Offers are made almost immediately, so if you take too long, you lose the candidates to one of the five other offers they have already gotten.

Examine your speed of hiring, interviewing, transferring, training, anticipating needs. Time to present candidates to a manager might be a bit longer, because you need to make sure the candidates qualify. Time for the manager to decide can be shortened by educating managers about this marketplace, so that they make better and quicker decisions.

You've got to decide what's value-added for you to do internally, and what gets outsourced. Let's focus on selling, branding, sourcing -- the key value-added components - and let the Internet and recruiting agencies supply what they are good at.

Get every step out of your value chain that you can possibly squeeze out of it, simplify and develop standards for how you do your recruiting, and capture the knowledge about what has worked and share it with everybody.

Network Constantly
You need to source by networking. Keeping files of resumes is not going to get the high quality candidates. So what percentage of candidates are you in contact with through e?mail, chat rooms, Web sites? Are you building relationships with a network of candidates? How fresh is your talent pool? Databases of resumes are about as useful as last year's financial reports. The Internet is your database.

Where people are doesn't matter any more. We need to hire and make people usable wherever they are. Everybody, everywhere, has to be followed in your mind as a candidate.

Referral is the very best way to get people. People who are referred and hired, generally stay. Build referral networks within your company.

People that may not want to go to work for you today, but that you constantly communicate with, through e?mails, newsletters, other information, and who you call up occasionally, maybe you take out to dinner or have Christmas parties for, someday they may come to work for you, because they know you.

Screen and Assess More Effectively
You need to do a better job of initial screening that is more predictive of productivity and success on the job. And it needs to be automated. Interviewing is not very predictive anyway. Many studies show that even the very best behavioral interviewing by a trained psychologist in a controlled situation is barely better than chance.

Your ability to assess candidates and make decisions about candidates has to improve.

Orient and Retain People
Orienting becomes a huge part of this job, as does the retention piece. This includes providing people with skills or whatever else they need to stay in the company

The shareholder will not be king in the 21st century. The people who will be kings in the 21st century are the people who have the creative ideas -- the product designers and innovators. They will also be the holders of a big chunk of the capital of the company, because they hold the value of the company in their hands.

We need to change our mindsets and think about employees as investors in our company. They have decided to invest their skills, their time and their knowledge in working for us, and they expect a return on their investment. It could be security, it could be money, it could be equity, it could be a great job. The minute we don't feel like we're getting an ROI, we start looking for another job. In this economy, we're gone in about 12 minutes.

Do employees own part of your company or not? Are your policies employee?oriented, or are they still manager?oriented? What will it take to keep the people you want?

Satisfy Your Customers and Measure Your Success
The bottom line is you have to satisfy fundamental customer needs with unprecedented levels of professionalism. And you've got to do that in an automated, simple, cost?effective way. Then you've got to develop measures that show whether you're doing it or not. You've got to measure the time it takes you to complete transactions, and you've got to set really impressive goals and challenge them every six months.

Plan the Workforce Dynamically
Lack of people is impeding growth.

We've got to look at this whole contingent workforce piece, and it's going to grow tremendously. In California, not very many people today have a traditional job. Even fewer will in the future.

You've got to leverage the lower costs of a distributed workforce and adapt to the fact that it exists. The work can go to where the people are.

Time is collapsing. The business needed people yesterday. The urgency to go out to agencies and headhunters is primarily triggered by speed, but also the perception that the internal people don't have enough savvy in the marketplace to hire the right people. So you've really got to work on this.

You've got to anticipate workforce needs better and plan better to meet them in a flexible, ongoing, dynamic way. You can't plan once a year and put it on the shelf.

Conclusion
Recruiters need highly customized products, benefits and pay systems that are automated, outsourced services to help do things that are traditionally time?consuming and not value-added. And we're going to do a lot more screening assessment. I think most candidates are going to get screened into your company through software that's on your Web site.

You've got to prove your hiring works with objective metrics. You've got to measure the quality or your hires, which means you've got to look at output and not input. How long do they stay in the company and how and what do they produce? You've got to focus on business impact.

Cisco has got some astonishing figures that shows that their best performers earn 300 times what the lowest performer brings in, in terms of revenue for the company. So they're going back into their recruiting systems and changing the screening software to find more and more of those people who produce 300X instead of 30 percent. But you have to know where to go to get these people.

CAUSES OF SUCCESS AND FAILURE AMONG KNOWLEDGE MANAGERS
(Presented by Raymond Miles, Professor Emeritus, UC Berkeley, Haas School of Business, and Phillip Kaser, Visiting Scholar, UC Berkeley, Haas School of Business)

We have reviewed the literature on knowledge work to create an analytical framework that explains, to some extent, those conditions in which knowledge might best be created and transferred, and those in which that is less likely to occur. First we'll review the framework and then we'll illustrate it with some cases.

Explicit knowledge is different from tacit knowledge. Explicit knowledge is the sort of knowledge that you and I might possess that we can could write down and actually transfer. Tacit knowledge is knowledge about how things get done, and may be the real key, in many instances, to the efficiency in organization. That's what happens when one expert talks with another expert or does something jointly with him, and out of that interaction a new awareness emerges. Tacit knowledge is not easily written down; it's knowledge that usually is shared by face?to?face interaction.

Sharing of tacit knowledge is a voluntary process. It is intrinsically motivated. I interact with you and share the tacit knowledge because I find it rewarding to do. It may be compensated, but we have to be very careful because different ways of compensation can actually diminish the likelihood that someone will share knowledge. If you pay me to do it -- if the motivation for me to share with you becomes instrumental instead of intrinsic, it may lead me to share no longer, or share incompletely.

Even when tacit knowledge is shared through intrinsic motivation, trusting relationships are required to sustain that exchange of tacit knowledge.

Knowledge activists, or knowledge managers, are people who try to create the conditions in an organization under which knowledge sharing can increase. Where intrinsic motivation for sharing is high, we can expect or anticipate that there's a better condition for the sharing of tacit knowledge. You can create conditions where people may be more likely to volunteer.

Many people argue that most of the things that get done in organizations get done voluntarily by people sharing in communities of expertise across the organization. They do it because they like to do it. The relationship that almost everyone is looking for is a truly collaborative relationship. True collaboration occurs when people share their ideas with others without any reservation. That is what drives most real learning and most real creativity. True collaboration occurs normally in organizations, but it's difficult to facilitate.

In addition to motivation, trust is a necessary condition for knowledge sharing. We've identified five types of trust. The lowest form is deterrent-based trust, which says, "I will not kill you, if you don't kill me." Next is calculus?based trust, which says "I expect something in return, and I anticipate a positive return; and, therefore, as long as you are positively responding to me, I will continue to trust you." A third and more intense form of trust occurs where being a member of the community gives me an immediate predisposition to trust you because I identify with you. The fourth level, knowledge? based trust occurs if I not only to identify with the group but know you personally. Finally and most positive, there's caring?based trust, which underlies most truly collaborative relationships. Caring?based trust is rare. It occurs when you know that I care as much about your getting a fair shake as you do. When that is mutual, then we've got a basis for complete, wide-open sharing.

What can you do about this in your organization? You can think about situations that are emergent in your organization and say, "What level of exchange is needed" and, "What conditions ?? what types of relationships would produce that? What types of trust will I have to help create to sustain it?"

Our first example is from a large multinational company. The goal was to facilitate knowledge-sharing between corporate research and business units. The knowledge activist had dual roles of corporate senior manager and knowledge facilitator. He organized a knowledge-capturing, knowledge-sharing workshop, inviting experts in different fields to come together for one week. At the workshop there was a structured format for capturing knowledge.

After the workshop, the knowledge that was captured was hardly ever used and team members or participants had very little interaction. So, during that one?week workshop, it was very hierarchical knowledge?sharing, because they were ordered to attend and because senior management was there. Participants knew that they could impress management by saying what they knew. But after the workshop was over, it stopped.

They did a couple of things right. They got them together. It wasn't completely voluntary, but it had some elements of volunteerism. What could you have done to make this work better?

You could increase the degree of volunteerism by asking a few key members to help nominate the others. You could have asked them, "What are the key things that you would like to find out from other members?" And you could put out your agendas and others could have put out theirs; and perhaps you could have shared those agendas ahead of time.

The next example took place in the same company. During a knowledge workshop, a local factory manager asked the corporate senior manager for help in building a new factory. The senior manager asked the informal leader of the workshop whether he would be willing to help, and he agreed. The senior manager offered him a staff position where he could dedicate his whole time to this and similar projects. He was also permitted to select four specialists, who were freed of their normal duties to spend about 25% of their time on the project.

The leader and his four team members helped build the factory and pursued other projects for about two years. But then the leader changed jobs. When that happened the other team members also quit. So the knowledge sharing ceased. The relationships that had been built were lost, and a valuable asset was lost.

What could you do here to improve the situation? They could have developed some protocols, some routines that would handle regeneration. Healthy relationships do develop these routines. People actually write down how we will sustain ourselves, how we will invite people in. Then they can negotiate with the organization, if necessary, to create those conditions.

The third example took place within an oil company's exploration division. The goal was to cultivate knowledge?sharing between businesses that were in different life cycle stages. For instance, one business that had good experience with drilling could share the experience with a group that was just starting to develop new oil fields and the company could save some money. But the company was set up to encourage the businesses to compete, not to share. So they had to set up a system where the knowledge sharers got some reward for their effort.

Two businesses participated in the project, and each one shared something that the other one needed to improve profitability. This created an knowledge exchange, but it was only between the two business units and on a quid pro quo basis.

What did they do right? The incentive was primarily, "Will you volunteer to do this? And if so, someone else will help you at some point." This probably wouldn't have been possible if you had gone at this in traditional organizational method, either by coercion, threats or standard rewards. You would have had to invent something to turn this into a community relationship, which could be intrinsic motivator.

The next example is in a record store company. Traditionally, corporate management appointed apprentices to record store managers for training. This only worked if the manager wanted to train the apprentice. The manager was able to refuse to train the apprentice.

The knowledge activist redesigned the process by which the apprentices and managers were matched. He set up a virtual discussion forum on the subject of buying. The apprentices participated in the forum and the managers could observe them and select which apprentices they wanted to train. The activist did added volunteerism to a traditional hierarchical model. The mentor role now has a high degree of volunteerism. However, it didn't move closer towards collaboration because the relationship was not voluntary from the perspective of the apprentices. They could not choose which mentor they wanted to have.

The last example is a little controversial. The company was not profitable, so they had to cuts costs. Traditionally, the CEO would have fired some employees. But the knowledge activist studied the informal networks, selected five informal leaders, and advised the CEO to do the following.

The CEO called the five leaders to a meeting on Friday afternoon. Usually that would mean, you're going to be fired. But instead the CEO said, "We know you are responsible for a lot of work that has been done in our company. So I am offering you an opportunity to spend two weeks at one of our labs as a group. You will be free to talk to all the scientists. At the end of these two weeks, you have to come up with some implementable ideas that will make us profitable." And then he lowered his voice and said, "If you do not come up with these ideas, you'll all be fired."

The CEO started out with social exchange because the group members were informal leaders. Then he gave these double parameters. On the one hand, he sets up a creative, sort of collaborative atmosphere within the group. On the other hand, the threat probably created more of deterrent space, so their motivation became instrumental. What resulted was more in the way of cooperation than collaboration. They knew they had to stick together, and they knew they had to come up with an idea in order to keep their jobs.

The obvious question here is could this have been handled better? There's a threat here, but it did work. My guess is that they did not treat the threat as an absolute threat. But they probably did produce less than they would have produced without the threat. Perhaps the common enemy unified them.

The boss was actually convinced that the threat was a crucial part of this exercise. What they learned from this was if you threaten, you're going to get a response, and I'm not sure that that's a lesson that they should have learned. They might have very well have achieved more in terms of the long?term response to this had they not included the threat.

COMPENSATION
Presented by Richard Kramlich, Co-Founder and General Partner, New Enterprise Associates

Richard Kramlich is one of the original venture capitalists in Silicon Valley. He discussed compensation in relation to start?up and early?stage companies, and the growth of a venture capital organization itself.

The first conclusion is that the ownership model works. Making everybody in the company an owner is a very empowering and enlightening point of view. It has really become the engine of our economy. We have, in the Silicon Valley (actually the whole Bay Area), a meritocracy. It's really gender?neutral, age?neutral, nationality?neutral. It's really on the basis of what you can do to help accomplish the mission.

The second conclusion is that you don't have to be the CEO. As long as you make a contribution to the company that is recognized by both those within the company and those that are close to the company, and ultimately the outside world, you can do extremely well monetarily.

New Enterprise Associates (NEA) have had 132 public offerings since we started. We've had 140 companies be acquired. We've lost about ten percent of our companies over the course of time.

We ask ourselves three basic questions before we get into a company. Number one, how is this business going to change the way people look at the world or accomplish what they want to accomplish? It has to be a disruptive technology or disruptive type of a business plan in order for it to have any really distinguishing characteristics.

Secondly, is this a team of people that I want to live with, through thin and thick? With the emphasis on "thin," because it always gets thin.

And lastly, can this be a significant company? Is this going to be open?ended? And if it isn't open?ended at the outset, can we somehow work with management to make it open-ended. You want people who see the mission broadly. They can grow along with it and would do whatever it takes to make the company succeed.

If the answers are all yes, we get into a more functional analysis. If the answers are "yes," "yes," and "no," but we really think the people are outstanding, maybe we'll do, anyway. The most important overriding consideration is, is the mission more important than the individual? If we feel as though the management feels that way, that's something that we could work on, because that's usually a defining characteristic of companies that really do well. If the individuals feel that they're more important than the mission, we usually take a pass.

So with that in mind, we surveyed senior level compensation at approximately 85 privately held companies that NEA funded. The data was taken from 1998 final year figures.

We start at 12% ownership for the chairperson and it carries all the way down, by function -- COO, CFO and so on. I would guess the inflation adjustments to these salaries should be on the order of 25%.

What has changed between 1998 and now? Given the turmoil in the equity markets for the last six or seven months, what is happening is that the cash salaries have gotten firmer. The tendency has been for people to stay in their jobs with a little greater determination than looking for the next job, looking for the easy?out, the next IPO. It actually lends a little stability to the picture.

Stock, whether employee stock purchase plans or stock options, can be a less attractive compensation factor these days, when you see a company like Apple drop nine billion dollars in market cap overnight. The only thing you can do, in operating within the framework of the public marketplace ?? which means you can't reprice ?? you have to have enough flexibility in the program, to re-goal people at newer levels, and just continue to try to work the problems.

At almost at all levels, technology outranks health care in equity ownership, except for perhaps chairman -- I think that may be the founder/chairman. It is particularly high is communications and networking. That's largely because of the Federal Communications Act of 1996, which was really a seismic event. It took 50 years of embedded infrastructure and changed it, completely disrupting the industry. Consequently, from nowhere there are robust companies that are bringing out the new technologies, and non-voice technologies.

So, now, let's talk about the venture capitalist. We started NEA in 1978, and it was the first partnership that started with offices on the East Coast and West Coast. We had two fellows on the East Coast and me on the West Coast, so it wasn't a big infrastructure.

We faced a tremendous decision?making problem, and that is, how do we get information to make decisions being this far apart? As a consequence, we developed a lot of information systems in the back office that provided us with tools that got information to our fingertips automatically, so we could spend our time discussing decisions.

We started a weekly conference call that now has been adopted by everybody else in business. It was a way of making sure that we could pursue our individual missions and coordinate them with our overall mission during the week, but once a week make all of our decisions in a three?hour time span. Nobody spent any money outside of that three?hour slice of time, in full view of everybody in the partnership. We thought that was a really good idea for sharing decision?making and shared goals and communication.

The other thing that we initiated back at that time, because I have a particular hatred of politics, was to practice socialism within the partnership. And that meant that every general partner had the same draw. We have as minimal a hierarchy as we can. Somebody would come in as an associate. If they went on a career track, subsequently they would become a partner, which is a decision?making position. At the general partnership level, everybody is treated equally.

We also wanted to have as much whole-goal congruence as we can with our limited partners, without crossing that magic line that differentiates a general from a limited partner. Among those factors that impact goal congruence is fees. The common practice in our business, at the time we started NEA, was to attach a two percent fee to the limited partnership. The problem with that model is that it's gets increasingly divergent. A venture capitalist can become wealthy on fees alone, despite how the partnership itself does. So we worked out a different model. We go over the budget with our partners, line item by line item. And then we use the budget as the numerator and all the active partnerships as the denominator, and use the result for the fee instead of the standard 2% or 2½%. Our total budget now is about $20 million against about $3 billion in the partnerships. This results in a fee of about 0.67%.

Another factor is the investment committee. At the time we started, the investment committee had real teeth in it. These were representatives of our limited partners, the largest individual participants in our pool of capital. We decided that everything we do is going to be transparent to them.

One of our partners was nicknamed, "Preacher Man," because he's got the ethics of a preacher; and he would keep our other partner and me from doing things that we shouldn't do. So he was the moral backbone of our group. And it's really served us well because after we've grown the partnership, we kept that ethic in place, and there's never been a sign of malfeasance across the partnership over a 22?year period of time.