Competitive Advantage Through Better Tacit Interactions

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Competitive Advantage Through Better Tacit Interactions

American businesses have steadily off-shored and automated manufacturing activities to reduce costs and increase flexibility. As a result, the face of the U.S. labor force has changed. It has increasingly become a world of “transactions.” And, within 10 years, nearly half of all employees in the United States will be involved in transaction-intensive work. Meanwhile, Europe and Japan will experience a similar change.

The McKinsey Quarterly1refers to this type of transactional work as “tacit interactions.” These interactions involve exchanging information, and drawing on knowledge in exchanges with co-workers, customers, and suppliers. The best workers in this context are those who can collaborate effectively with others, and can create a web of relationships in an atmosphere of trust and continuous learning.

The problem facing most businesses these days is how to focus tacit interactions on creating value and ensure that employees who engage in them have the right information and context in which to operate. This involves changing the way companies organize themselves, generate new strategies, and manage talent and information technology.

The traditional strategies for improving efficiency — such as standardizing the steps in a process — won’t work with tacit transactions. Instead, leaders will have to find ways to boost an individual worker’s effectiveness. That, in turn, enables the firm to build unique pools of talent that competitors will find impossible to imitate.

Tacit interactions are nothing new. In the insurance industry, for example, they make up 63 percent of the work. In securities, the proportion is 60 percent. In healthcare it’s 70 percent, and in retailing, 40 percent. Other workers engaged primarily in tacit interactions include:

  • Software engineers at corporations such as Google, Microsoft, and Yahoo.
  • Managers of manufacturing at companies like Cisco, who have to coordinate the interactions among the sales force, the suppliers, and the manufacturers.
  • The managers of funds at firms such as Blackstone and Fidelity Investments.
  • Doctors and nurses at organizations like Kaiser Permanente.
  • Movie producers and merger integration managers.

Insisting that “tacit workers” follow uniform procedures in getting their work done is not an effective strategy...

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