Knowledge
Management: An Introduction
Introduction
As the foundation of today’s
global economy moves away from natural resources to intellectual assets,
knowledge has increasingly become the only basis for a competitive advantage
that can be sustained. Rather than land, labor or capital it is knowledge that
is the key factor of production in many industries. In this “third wave”*, the
wealth system is increasingly based on
thinking, knowing and serving customers in the way of providing them a unique experience.
Companies need superior knowledge to leverage their traditional
resources and capabilities in new and distinctive ways to serve their customers.
And they must do this more effectively compared to competitors. As a
result, Knowledge Management (KM) is being taken seriously by companies across
industries.
A major driver of KM in recent times has
been Information Technology (IT). But KM should not be equated with IT. It is
human beings who think, experiment and learn to create knowledge. Much of the
valuable knowledge that lies in the brains and minds of people can be best
shared through human interaction. IT is only an enabler, though in the words of famous journalist, Thomas A Stewart
,’it is one hell of an enabler’. Without IT, would be quite difficult to
replicate and distribute knowledge related documents in a cost effective way across
an organization that is largely geographically dispersed. As Stewart mentions[1],
“KM is knowing what we know, capturing and organizing it and using it to
produce returns. Nothing in that definition says anything about computers but
modern knowledge management is inconceivable without using them and in some
sense they created it.”
A final point before we get
into more details is that KM should not be looked upon as a new mantra that can
produce a magical impact on the functioning of an organization. Organizations
need to take a practical hard-nosed perspective when it comes to managing
knowledge. Like any other initiative, KM activities will build momentum, only if
they generate business value. That in turn is possible only if KM helps the
organization to cut costs by improving efficiency or to innovate and come up
with new products/services.
Background Note
Development and sharing of
knowledge started from the time God brought man to this world. For millions of
years, human beings had limited ways of passing knowledge to the next
generation. Apart from oral narratives, knowledge died with each dying person
and each dying generation. Fortunately, the pace of change was so slow that it
did not really matter. As Alvin Toffler mentions in his recent book,
“Revolutionary Wealth”, a major breakthrough occurred about 35,000 years ago
when someone drew the first pictograph on a cave wall to mark an important
event. The next turning point in knowledge sharing came when man learnt to
write, enabling future generations to access the knowledge of earlier
generations. The invention of the printing press, which allowed copies of a
document to be made and distributed cost-effectively, was another watershed
event. And in the last 10 years, IT in general and the Internet in particular
have given a new momentum to KM.
When we go through the history books ,
we notice that knowledge as a subject, including knowing and reasons for knowing,
was documented by Western philosophers for millennia, and undoubtedly, long
before that. Since ancient times, Eastern philosophers too have emphasized
knowledge and understanding for conducting both spiritual and material life. The
Hindu religion, for example, has laid great emphasis on gaining knowledge. Along
with these efforts directed towards theoretical and abstract understanding of
knowledge, practical needs for expertise and operational understanding have also
been important since the battle for survival first started.
Managing practical knowledge was
implicit and unsystematic at first. Later, it became more systematic. The
craft-guilds and apprentice systems of the 13th century, were based
on systematic and pragmatic KM considerations. So also was the way owners of
family businesses passed on their commercial acumen to their children. Still,
the practical concerns for knowledge and the theoretical and abstract
perspectives were not integrated then.
There was little change in
the need for putting knowledge to practical use until the industrial revolution
changed the economic landscape in the 17th century. The introduction
of factories and the need for systematic specialization, gave an impetus to
knowledge. Still, KM was largely based on traditional approaches such as a
master training an apprentice. Meanwhile, schools and universities mostly focused
on providing education for the elite. Knowledge was approached from a largely
theoretical perspective with little effort directed at leveraging it for making
products and services needed by society.
All this has changed in recent times. Today
KM is increasingly being looked at from a business perspective. Many
organizations have put in place systems and processes for managing knowledge to
cut costs or differentiate their products/services. At the same time, there is
a growing belief that intellectual development plays a key role in motivating workers
and making them more productive in the workplace. As Peter Senge has mentioned,
people in general have a natural desire to learn. Thus KM can be seen as one
more step in the evolution of the move towards personal and intellectual
freedom that started with the age of enlightenment and reason a few centuries go.
In the years to come, KM
will increasingly be an integral part of corporate strategy for the following
reasons:
·
KM helps avoid
unnecessary work duplication, expensive reinvention of the wheel and repetition
of mistakes. In other words, KM improves productivity.
·
KM softens the
blow when talented people leave the firms, by ensuring that most, if not all of
their knowledge is captured in the company’s systems and processes.
·
KM improves the
agility of the firm by helping it to understand and react to the environment
better.
·
KM can compress
delivery schedules and reduce cycle time, by reuse of components.
Understanding
KM
What exactly do we mean by KM? KM does not have the same meaning across
organizations. Some companies focus on knowledge sharing among individuals or
on building elaborate educational and learning capabilities. Others emphasize the
use of technology to locate, capture, manipulate and distribute knowledge. A
few others focus on knowledge utilization to improve the enterprise’s
operational and overall effectiveness. Still others pursue building and
exploiting Intellectual Capital (IC) to enhance the enterprise’s economic value
and generate sustainable competitive advantage. (See Schools of Knowledge
Management)
While there may be different approaches, in a broad sense,
KM is the systematic and explicit management of knowledge-related activities,
practices, programs, and policies within the enterprise. The goal of KM is to build and exploit knowledge assets
effectively and gainfully. The key challenge in KM is to leverage the knowledge
of individuals for the benefit of the organization. By systematically mapping,
categorizing, and benchmarking organizational knowledge, KM makes knowledge
more accessible throughout an organization. A systematic approach to managing
knowledge also helps a company prioritize particular strategic areas of
knowledge. This enables the company to strengthen its core capabilities and
compete more effectively in the market place.
As Amrit Tiwana says [2],
“KM enables the creation, distribution and exploitation of knowledge to create
and retain greater value from core businesses competencies. KM addresses
business problems particular to your business – whether it is creating and
delivering innovative products or services, managing and enhancing
relationships with customers, partners and suppliers or improving work
processes. The primary goal of KM in a business context is to facilitate
opportunistic application of fragmented knowledge through integration.”
Data, Information
and Knowledge
“Data”, “information” and “knowledge” are
three different terms. Understanding what they stand for and how they differ,
is the starting point in KM.
Data
Data
is a set of discrete, objective facts about events[3]. Data can be viewed as structured records of
transactions.
People
gather data because it is factual and generates a feeling of scientific
accuracy. They think that if enough data is available, objectively correct
decisions will automatically follow. But as Davenport
Data
management is typically evaluated in terms of cost, speed, and capacity. How much does it cost to store or retrieve data? How soon
can we get it into the system or retrieve it?
How much is the storage capacity? Qualitative
measurements are timeliness, relevance, and clarity[4]. Do we have access to it
when we need it? Is it what we need? Can we make sense out of it?
Information
Information is a message meant to change the way the receiver
perceives something and have an impact on his judgment and behavior. Information
is data that makes a difference[5][UT1] .
We
transform data into information by adding value in various ways[6].
- Contextualizing: Understanding for what purpose the data was gathered
- Categorizing: Knowing the units of analysis or key components of the
data
- Calculating: Analyzing the data mathematically or statistically
- Correcting: Removing errors
from the data
- Condensing: To make the data available in a more concise, user
friendly form
Information
moves around organizations through hard and soft networks[7]. Hard networks refer to visible and definite infrastructure like
electronic mailboxes. Soft networks are less formal and visible and more ad
hoc. When a colleague sends a note or a copy of an article marked
"FYI", or when two people exchange notes at the water cooler or
cafeteria, the soft network is in operation.
Quantitative
measures of information management focus on the degree of connectivity and the
number of transactions: How many downloads are taking place daily? How many messages do we send in a given period?[8] Qualitative measures focus on the depth and
usefulness of information. Does the message give us some new insight? Does it help make sense of a situation and contribute to
decision making or problem solving?
Knowledge
It is important to understand what knowledge is and
what it does because too often, organizations focus all their efforts on
data/information management. In the process, the unique dimensions of knowledge
are completely ignored. For example, an excessive focus on IT effectively
converts KM into information management. As we shall see later, the
organizations that have the most effective KM processes, synergize information
technology and human networks to give a boost to knowledge creation and
sharing.
Knowledge
is broader, deeper and richer than data or information. Information becomes knowledge, through[9]:
- Comparison: How does information about this situation compare with
other situations?
- Consequences: What implications does the information have for
decisions and actions?
- Connections: How does this bit of knowledge relate to others?
- Conversation: What do other people think about this
information?
Knowledge
because it is more actionable is more valuable than data or information. Better knowledge leads to improved productivity or
lower cost and facilitates better decisions.
Knowledge develops over time, through
experience which provides a historical perspective from which to view and understand
new situations and events. Experience helps us to recognize familiar
patterns and make connections between what is happening now and what happened
in the past. Experience changes the focus from what should happen into
what does happen. Knowledge is much more than a recipe to
deal with routine situations. When we
become knowledgeable people we see some patterns
even in new situations and can respond appropriately. We
don't have to start from scratch every time.
There are two kinds of
knowledge - Explicit and Tacit. Explicit knowledge can be codified and
transmitted formally and systematically through documents, databases, intranet,
email, etc. Tacit knowledge is difficult to encode, formalize or articulate. It
is personal and context specific. Tacit knowledge is shared and developed by
observation and practice, through a process of trial and error.
Though, it may appear that data, information and knowledge
lie on a continuum, there are discontinuities that make knowledge fundamentally
different from information. The discontinuity between information and
knowledge, is caused by how knowledge is created from the newly received information.
New insights are typically internalized by establishing links with already
existing knowledge, which helps us make sense of received information. Hence,
the new knowledge is as much a function of prior knowledge as it is of received
inputs. In short, data can be “processed” into information say by using
computers, but information cannot be “processed” into knowledge in a similar
manner. The human factor plays a critical role in the conversion of information
to knowledge.
Knowledge provides us with the ability to handle
different situations and to anticipate implications, judge their effects and
improvise. Unlike data and information, knowledge can
judge new situations in light of what is already known and also judge and
refine itself in response to new situations. Knowledge is like a living system
that grows and changes as it interacts with the environment.
By helping us deal
with complexity, knowledge provides value. As
Davenport & Prusak mention[10],
it is tempting to look for simple answers to complex problems and deal with
uncertainties by pretending they don't exist.
Knowing more usually leads to better decisions than knowing less, even
if the "less" seems clearer and more definite. Certainty and clarity
may seem convenient but they often come at the price of ignoring key factors.
Towards sustainable
competitive advantage
Knowledge
is a particularly valuable asset. Among all assets, it is the one most likely
to lead to a sustainable competitive advantage. The economics of knowledge is
different from that of other assets. The cost of producing knowledge is little
affected by how many people eventually use it. Knowledge also provides increasing
returns. Unlike traditional physical goods that are consumed as they are
used (providing decreasing returns over time), knowledge provides increasing returns as it is
used. The more it is used, the more valuable it becomes, creating a self
reinforcing cycle[11].
Unlike other assets,
knowledge is difficult to replicate. Knowledge, especially
context-specific, tacit knowledge tends to be unique and difficult to imitate
and cannot be easily purchased in the marketplace. To get hold of such
knowledge, competitors have to go through similar experiences. This can take
time. Merely making heavy investments in technology, systems or processes may
not accelerate the learning.
Knowledge-based
competitive advantage is also sustainable because a firm that already knows, is
better placed to learn[12].
As Michael Zack[13]
has put it, learning opportunities for an organization that already has a
knowledge advantage may be more valuable than for competitors having similar
learning opportunities but starting off, knowing less. Sustainability also
results when an organization already knows something that uniquely complements
newly acquired knowledge. Then the new knowledge can be combined with existing
knowledge to develop unique insights and create even more valuable knowledge.
Framing a knowledge strategy[14]
The starting point in KM is
framing a knowledge strategy. Knowledge strategy effectively means identifying
and developing the knowledge required for providing products or services to
customers, more effectively than competitors. Identifying
which knowledge based resources and capabilities are valuable, unique, and
inimitable as well as how those resources and capabilities support the firm's competitive
position form the essence of a knowledge strategy[15].
The strategic choices that the
company makes, regarding technologies, products, services, markets and
processes determine what kind of knowledge is required to compete and excel in
an industry. On the other hand, what a firm does know, limits the ways in
which it can actually compete.
A firm must realign
its strategy with its capabilities. Alternatively,
it must make the necessary investments to acquire the capabilities to execute
its strategy. KM initiatives should be directed towards acquiring these capabilities.
This alignment of business strategy and knowledge lies
at the heart of a firm's knowledge strategy.
World class organizations
like the consulting firm, McKinsey drive KM by having what is called a
knowledge agenda which identifies knowledge gaps and how they must be dealt
with. But pinpointing the knowledge that an organization must build is not
easy. There are no simple answers regarding what a firm must know to be
competitive. Indeed, if the answers were so easy, knowledge would not yield a
sustainable advantage. The trick is to stay in touch with customers, understand
what competitors are doing, and develop a broad vision of how the business
environment is likely to evolve in the long run and the kind of knowledge
capabilities that might be required.
Another point to be
emphasized is that all pieces of knowledge may not be equally valuable. Specifically, knowledge can be classified as core,
advanced, or innovative. Core knowledge refers to the
basic knowledge required to compete in an industry. Such knowledge is held by all
players and therefore does not provide a sustainable competitive advantage.
Advanced knowledge is more
likely to generate sustainable competitive advantage. To take an example, there
are many world class consumer electronics companies. But Sony is ahead of them
because it has developed unique capabilities in miniaturization. Similarly, in
the computer software industry, IBM has developed advanced knowledge of
middleware.
Innovative knowledge is needed
for a firm to significantly differentiate itself from its competitors and stay
ahead of them. Innovative knowledge often enables a firm to change the rules of
the game itself. In the automobile industry, Toyota
Knowledge is not static. What is innovative knowledge today will ultimately become
core knowledge tomorrow. Thus defending and strengthening a competitive position
requires continual learning and knowledge acquisition. It often involves
unlearning as well as the situation changes. Technology may become obsolescent
and customer tastes may change. The ability of an organization to learn,
accumulate knowledge from its experiences, unlearn sometimes and reapply that
knowledge, are the building blocks of an effective knowledge strategy. As Alvin
Toffler mentions[16],
“Today, work-relevant knowledge changes so rapidly that more and more new
knowledge has to be learned both on and off the job. Learning becomes a
continuous flow process….every chunk of knowledge has a limited shelf life. At
some point, it becomes obsolete knowledge.
Making Strategic choices
Putting in place a well
thought out knowledge strategy involves making strategic choices. A company
must first identify the role of knowledge in its business. How knowledge
intensive is the business? What kind of knowledge is important? Who is
generating this knowledge? Who is using the knowledge? Who is getting paid for
the knowledge?
The overall approach of the
organization to knowledge creation and sharing must then be critically examined
along two dimensions. The first addresses the degree
to which an organization needs to increase its knowledge in a particular area as opposed to exploiting its existing
knowledge resources. The second dimension is whether the KM initiatives
are predominantly IT centric or people centric.
Exploration vs.
Exploitation
When knowledge is in short
supply, the focus must be on exploration. When an organization has less knowledge
than that is needed to execute its strategy or to defend its position, it must develop
or acquire knowledge. Similarly, when competitors know more, the focus must be
on knowledge acquisition. If knowledge in the industry is changing rapidly, and
companies are rapidly innovating, creating new knowledge becomes the priority. On the other hand, when available knowledge resources and
capabilities are more than adequate, the organization can further exploit the
available knowledge,
possibly within or across business units and sometimes even by entering new
businesses.
Exploration creates
the knowledge needed to exploit new opportunities while maintaining the
viability of existing ones.
Exploitation provides the
financial capital to fuel successive rounds of exploration. Exploration without
exploitation is not economically viable in the long run. At the same time, after a point, exploitation without exploration
will be like trying to pump water from a dry well. So companies must strive to maintain a balance
between exploration and exploitation.
The creation of
unique, strategic knowledge takes time, forcing the firm to balance short-and
long-term resource commitments. The firm therefore must determine whether its
efforts are best focused on longer-term knowledge exploration, shorter-term
exploitation, or both[17]. Exploration and exploitation activities must be
linked and coordinated to reinforce one another in a virtuous circle. Balancing exploitation and exploration requires smooth
knowledge transfer across functions and business units. Time delays
between developing and applying knowledge as well as between applying and
developing the next round of knowledge should be minimized. This requires a
culture, reward systems, and communication networks that support the smooth flow
of knowledge.
Codification vs. Personalization
A second issue is whether
the knowledge strategy should be centered on IT or person-to-person contacts. According
to Hansen, Nohria and Tierney[18],
some companies focus on codification, i.e., codifying and storing knowledge in
databases for easy access by people across the organization. In other
companies, the focus is on personalization, i.e, building connections among people,
the role of technology being limited to facilitating such connections and to
helping people communicate this knowledge. The choice between codification and
personalization should be driven by the company’s business strategy.
Codification is recommended when the business needs to reuse knowledge assets
effectively. For example, IT consulting firms like Accenture use codification
to provide high quality, reliable and fast IT solutions to their clients. In
contrast, where customized solutions have to be provided as in strategy
consulting, personalization is preferable. Mckinsey is a good example. As
Hansen, Nohria and Tierney put it, “A company’s knowledge management strategy
should reflect its competitive strategy: how it creates value for customers,
how that value supports an economic model and how the company’s people deliver
on the value and the economics.” Thus companies that pursue an
assemble-to-order or service strategy may be better off with codification.
Those that provide highly customized product/service offerings or a product
innovation strategy may find it useful to pursue personalization. Companies
that have an effective KM strategy pursue one of the two strategies
predominantly and use the second to support the first. Hansen, Nohria and Tierney
call it the 80-20 split. Companies should not get stuck in the middle. Trying
to do both in equal amounts will fail to produce the desired results. Just as a
firm should either pursue cost leadership or differentiation, similarly it must
make a strategic choice between codification and personalization.
Firms focused
on exploiting internal knowledge exhibit the most conservative knowledge
strategy. Those who closely integrate
knowledge exploration and exploitation without regard to organizational
boundaries represent the most aggressive strategy. In
knowledge-intensive industries, in cases where a firm's knowledge significantly
lags its competitors or where the firm is defending a knowledge position, an
aggressive knowledge strategy is needed. In mature industries where technology is not changing much,
a conservative strategy may make sense.
Building Dynamic Capabilities
In
their interesting book, “The Only Sustainable Edge – Why Business Strategy
depends on Productive Friction and Dynamic Specialization” John Hagel III and
John Seely Brown point out that the paradigm for knowledge creation and sharing
is undergoing major changes. Companies must not only
be able to exploit fully their internal capabilities to differentiate themselves
in the market place but also mobilize the resources of other companies to
deliver greater value to customers[19].
As customers become more demanding, the knowledge within the firm may
not be adequate. At the same time, if the company does not have unique
specialized knowledge, it will be difficult to mobilize knowledge from outside. As the authors point out, [20]“….distinct
capabilities remain the basis of strategy but must rapidly evolve among
collaborators to remain a source of strategic advantage. The competitive edge
ultimately depends on a firm’s institutional capacity to rapidly deepen its
distinctive capabilities and to accelerate learning across enterprise
boundaries, rather than simply mobilizing static resources.” Hagel III and
Seely Brown emphasize that companies must look for areas with the greatest
potential for specialization and learning. They must closely watch the edges of
business activity for this kind of capability building. Edges refer to
the interfaces between enterprises, between industries/markets, between nations
and between generations of customers. Companies must strike a balance between
their core businesses and these edges which is where the potential to innovate
and create value is maximum. Resources and opportunities emerging on the edge
must be tapped to amplify the existing core capabilities.
Implementing
KM
It may be difficult to introduce KM
across the organization in one go. One way to kick-start KM activities in an
organization is to launch short burst KM initiatives. Typically, they may
involve creating an intranet, creating knowledge repositories, setting up data
warehouses, decision support tools, implementing groupware, helping knowledge
workers come together and mapping internal expertise. Successful KM projects
aim at solving a problem that is crying for a solution.
The right project to launch can be
determined only after thoroughly examining the key knowledge processes in the business.
Some involve the creation of knowledge. R&D is a good example. Others
involve the sharing of knowledge. Other processes may involve
discovering/finding knowledge (market research), applying knowledge (after
sales service) or reusing knowledge (a school teacher).
Broadly speaking, KM initiatives can
focus on either knowledge creation or knowledge sharing or both. Knowledge
creation is largely about innovation. There is plenty of literature on managing
the innovation process. We will not go into the details here except for
pointing out that innovation is as much about developing specialized expertise
as about culture. If the culture does not encourage experimentation and risk
taking, innovation will not really take off, even if the organization has the
most talented people.
Knowledge sharing initiatives must be
tightly linked to the company’s business processes and what people need to know
to do their jobs effectively. The right questions to ask are: What are the jobs
people are trying to get done? What is the knowledge base required? Customers
can also be asked what they expect the company to know.
Knowledge sharing initiatives can take
various shapes. A yellow-page may be a good starting point. A knowledge
repository may house important documents that are frequently used. A help desk
can play the role of a librarian – guiding people around the repository,
keeping the databases up to date, etc. A bulletin board can help people place
requests so that others within the system can respond. To facilitate sharing of
tacit knowledge, a physical context may also be needed. That means providing
meeting spaces and conference rooms.
Suitable design of the work place can also help by creating more opportunities
for conversations on corridors and near coffee vending machines.
Evaluating the strategy
One
problem with any strategy is that it takes time for results to come. A knowledge
strategy too might take years to implement and generate the full benefits. In
the interim, companies must use their common sense and ask some basic questions
to evaluate the strategy. Is the organization’s intention clearly defined? Is the
knowledge strategy built around the company’s core competencies? Unless the KM
activities have been prioritized and the company is clear about what kind of
knowledge to go after, KM will not take off. For example, introducing the
latest technology without identifying what knowledge is beneficial to the
organization is doomed to failure. Is KM tightly linked to potential
improvements in the way the company is adding value for customers? Are KM
activities focused on improving or streamlining the value chain? Is the
knowledge being captured or shared, helping people to do their job more
efficiently? If the company is going through a major change initiative, can KM
help in revitalizing the company? Yet, another issue is whether the culture
exists for a full blown KM initiative. If cultural issues are not addressed, a
major KM initiative is unlikely to succeed.
The Road Ahead
Many developments are under way that will influence
how KM will evolve in the coming years. These include:
·
Developments in
information technology that allow KM practices to be
extended to new areas.
·
Greater
understanding of how knowledge workers do their job.
·
Sharing of best
practices across companies and industries.
·
Growing
opportunities to create unique value for customers, using knowledge.
·
Intensifying
competition and the ongoing quest for sustainable competitive advantage.
Companies that understand the importance of knowledge
and know how to manage it systematically to improve their business performance
will emerge as market leaders.
[1] Stewart,
Thomas A. “The Wealth of
Knowledge: Intellectual Capital and the Twenty-first Century Organization” Currency, 2003.
[2] In his
book, “The Knowledge
Management Toolkit: Orchestrating IT, Strategy, and Knowledge Platforms” Prentice Hall, 2002.
[6] See
“Working Knowledge,” by Tom Davenport & Larry Prusak, HBS Press, 1998.
[10] In
their well known book, “Working Knowledge,” Harvard
Business School Press, 1998.
[13] Zack,
Michael H. "Developing a Knowledge Strategy" California Management
Review, spring 1999, pp 125-145.
[14] This and
the following sections draw heavily from the article, “Developing a Knowledge
Strategy,” by Michael Zack, California
Management Review, spring 1999, pp 125-145.
[16]
Revolutionary Wealth.
[18] Hansen, Morten T.; Nohria,
Nitin; Tierney, Thomas. "What's your strategy for managing
knowledge?" Harvard Business Review, March-April 1999, pp 106-116.
.
[20] Hagel, John III; Brown, Seely, John. “The Only
Sustainable Edge” Harvard Business
School
[UT1]good
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