This blog explains the McKinsey concept of “tacit interactions,” and relates it to SAP’s “Business User” initiatives.
Tacit interactions are activities that information workers perform that involve the exchange of information and draw heavily on the workers’ creativity and on-the-ground judgment. They include coordinating, monitoring, negotiating, observing, listening, persuading, identifying new markets and value propositions, and so on. The percentage of employee activities that constitute tacit interactions is increasing across the board in all industries, and has reached as high as 60 to 70 percent in the financial and health care sectors.
The most profitable companies have high levels of tacit interactions, but high levels of tacit interactions in and of themselves do not guarantee strong performance. In fact, the variability in level of performance is considerably higher in industries that have high levels of tacit interactions than it is in industries such as manufacturing that have lower levels of such interactions. The high variability in performance stems from the fact that tacit interactions do not lend themselves to routinization, unlike production lines or repetitive transactions.
Thus, companies with high levels of tacit interactions have a higher risk of poor performance than those with low levels, but they also have greater potential for very high net income per employee. Some companies in high tacit interaction industries have been able to empower and inspire their knowledge workers so that they are highly effective at creating value. Companies that are emerging as the most profitable as the new century unfolds are able to unlock value that has been tied up in organizational silos, and create new combinations of value that are greater than the sum of the parts.
Much of the value that tacit interactions unleash and repurpose consists of intangible assets such as business process knowledge and other forms of expertise, as opposed to traditional hard assets such as capital equipment. A company’s unique business model and value propositions, defined and executed via a combination of tacit interactions and automated processes across internal organizations and external value networks, are what defines competitive advantage in our innovation economy.
Because tacit interactions are not routine, it is usually not possible to automate them. Typically it is also difficult to outsource jobs that involve a high level of tacit interactions, because they require a lot of face-to-face communication.
Rigid organizational silos stifle the effectiveness of tacit interactions because they make it difficult to create new value propositions that combine assets across the barriers, and they disrupt the flow of information that is life-giving oxygen for information workers. Thus, a key to understanding the performance of the most profitable companies is recognizing that, when they break down organizational silos and proactively assure information flow with minimal bureaucratic impedance, the fact that a high percentage of their employees are oriented to tacit interaction becomes a powerful wealth generator. Tools that increase the productivity of business users when they engage in tacit interactions thus can have a high impact on profitability. Business Users
SAP’s products for the Business User are aimed at “tacit interaction” professionals who formulate and manage innovative value propositions and who require the ability to collaboratively exchange information across organizational boundaries. These products include integrated enterprise search; Duet, which integrates Microsoft Office with SAP applications; Governance Risk Compliance (GRC) management; and Corporate Performance Management (CPM). Increasingly, “Web 2.0”-style collaboration capabilities will enhance these products. SAP has created an entire organization dedicated to addressing the needs of the Business User.
Products for the Business User integrate with SAP’s more traditional applications, which address tasks that are more amenable to automation. Automating routine tasks while providing strong collaboration and decision support tools for tacit interactions helps Business Users create value for their companies.
Scott C. Beardsley, Bradford C. Johnson, and James M. Manyika, “Competitive Advantage from Better Interactions,” McKinsey Quarterly, 2006 Number 2. This article introduces the concept of Tacit Interactions.
Doug Merritt, “Business User Organization Overview,” http://www.sap.com/company/investor/presentations/pdf/Doug_Merritt.pdf. This is a presentation given at SAPPHIRE ’07 in Vienna by SAP’s head of Business User development.
Lohr, Steve, “At I.B.M., A Smarter Way To Outsource,” New York Times Business Day, pp. C1-C4, July 5, 2007, http://www.nytimes.com/2007/07/05/business/05outsource.html?pagewanted=1&ei=5088&en=540f0f35ff420ef8&ex=1341288000&partner=rssnyt&emc=rss. This article does not use the term “tacit interaction,” but it is an interesting profile of some information workers who perform tasks that can’t be outsourced.