A primer on knowledge management

A report by Geoff Armstrong Director General of the Chartered Institute of Personnel and Development (The Importance of Human Capital in Investment Management) points to the interest taken by boards of directors and the investment community in measuring human capital and the role played by knowledge management in leveraging value out of that resource. These findings were published by the Institute of Chartered Accountants in England and Wales ‘2020 Steering Group’[1] following a meeting held in January 2000 exploring the growth in the value of intangibles, human and reputational capital, in business performance.

This article examines what is meant by knowledge and knowledge management (KM), outlines approaches to the latter with particular reference to the contribution of information and communication technologies on the one hand and changing organisations and people on the other. It concludes with a brief comment on the measurement of KM.

What is knowledge?

Students will be familiar with the distinction drawn between data and information. The former being defined as observations of facts outside of any context, the latter being data within a meaningful context. One way of understanding what is meant by knowledge is to think of it as being ‘information-plus’ or information combined with experience, context, interpretation, reflection and is highly contextual. It is a high-value form of information that is ready for application to decisions and actions within organisations.[2]

Theorists make a distinction between two categories of knowledge, that which is said to be tacit and that which is explicit.

• Tacit knowledge - knowledge that 'is subconsciously understood and applied, difficult to articulate, developed from direct experience and action, and usually shared through highly interactive conversation, storytelling and shared experience'.
• Explicit knowledge - explicit knowledge in contrast 'is more precisely and formally articulated, although removed from the original context of creation or use...'[3]

Examples of ‘tacit’ knowledge would be ‘best practice’ performed in an organisation, management skills, technologies, customer, market and competitor intelligence. Explicit knowledge would include for example the content of spreadsheets, management reports, procedural and training manuals.

Knowledge and intellectual capital

Intellectual capital is an expression that is sometimes used interchangeably with knowledge4. As an ‘intangible asset’ however it usually refers to copyrights, patents, licenses, royalties’ etc a narrower definition distinct from knowledge (capital) as defined above which has definite human (capital) connotations.

These definitions may be seen as different points on a continuum (Figure 1) with data at one end and tacit knowledge at the other. The further we move towards the tacit the more important is context.

Figure 1

Knowledge processes

Whether explicit or tacit, a number of processes are found in organisations in relation to knowledge. It is useful to recognise this as it gives us an insight into how knowledge may be ‘managed’ (knowledge management) to the organisation’s advantage.

Ruggles[5] points to eight knowledge processes:

• Generating new knowledge.
• Accessing valuable knowledge from outside sources.
• Using accessible knowledge in decision making.
• Embedding knowledge processes, products, and/or services representing knowledge in documents, databases, and software.
• Facilitating knowledge growth through culture and incentives.
• Transferring existing knowledge into other parts of the organisation.
• Measuring the value of knowledge assets and/or impact of knowledge management.

As we shall see later attempts at KM focus on improving these processes within organisations (but usually towards only one or two processes at any one point in time).

Knowledge management

Knowledge management is the attempt to improve/maximise the use of knowledge which exists in an organisation. More specifically it aims to stimulate its creation and encourage its capture, sorting, sifting, access, linking, storage and distribution. In short, it addresses itself to the processes identified above.

Why knowledge management is important

Traditionally economics textbooks emphasise the quantity, quality and combination of ‘factors’ of production (land, labour, capital and enterprise) in competitive advantage. Nowadays, however, it is argued that the creation and exploitation of ‘difficult-to-replicate’ assets such as knowledge is crucial if competitive advantage is to be gained and retained.

The strength of this argument is likely to vary from sector to sector in the economy and is probably at its weakest in respect of organisations in the public sector where political influence is strong and for utilities where regulatory regimes rather than market pressures are key drivers for efficiency. The argument is strong especially in respect of web services, electronic banking, brokerage and biotechnology and to large swathes of manufacturing where a number of areas of expertise need to be brought together to bring products to market.[6]

While communications was seen as the top priority in making their company a good one by business leaders surveyed by SmytheDowardLambert the change management consultancy knowledge was chosen as a priority by 91%.[7]

At a pragmatic (operational) level a survey of 1,051 organisations by the American Management Association[8] revealed strong agreement by respondents to the statement 'Knowledge management is vital to our company’s future success'. The same sample reported positive measurable results from knowledge management in especially higher customer satisfaction, better employee satisfaction, product/service innovation and improved profitability.

Approaches to knowledge management

How can organisations manage knowledge effectively through managing its creation and exploitation? To date there have been two general approaches: through the application of information and communication technologies and to a lesser extent via paying attention to the human factor in organisations.

Dealing with the human factor

The aim is to create an organisational climate or culture in which employees have a positive orientation towards knowledge and are not inhibited in sharing the knowledge they have. A study in 1997 carried out by the Ernst and Young Centre for Business Innovation found than among US and European organisations “changing people’s behaviour” was seen as the biggest difficulty in managing knowledge and the biggest impediment to its translation was culture.[9]

Knowledge has often been used in organisations to gain advantage in terms of influence and self-advancement by those who have it over those who do not. Change in culture and individual behaviour must aim towards encouraging the use of knowledge not for individual advantage but for the benefit of the organisation as a whole. The aim is to create a knowledge-sharing environment. This typically requires a change in organisational structure, values, leadership behaviour and various human resource management practices.

Organisation structure

Ridderstrale[10] says organisation structures need to move away from the bureaucratic model with its extensive hierarchies, precise definition of role typically within ‘functions’, fixed patterns of communication and working procedures.

Figure 2 summarises Ridderstrale’s prescription for an organisational architecture favourable to effective KM. In large measure what is advocated reflects changes in organisation structure supported by most management writers in recent years and have been put into practice by many organisations.

Figure 2 Organisational characteristics for effective KM

• Flatter and decentralised structure allowing decisions to be taken where critical knowledge is located.
• Flexibility which allows movement of personnel between functions, business areas, divisions or countries to respond to opportunities (or problems) which span boundaries.
• Use of employees in temporary and boundary spanning projects not restrained by positioning in a hierarchy, supported by resources, given influence and kept within the structure through shared norms, values and vision.

(From Ridderstrale op. cit.)
 

In addition to making recommendations to organisation structure, Ridderstrale emphasises (as do others – see below) the importance of shared ownership (eg through stock options through which all may benefit from improvements in organisational performance), a shared culture, vision and values and rewards for knowledge sharing. Writers on KM are in agreement in stressing the importance of shared values which have been identified in field research by the Roffey Park Management Institute[11] as:

• openness
• trust
• acknowledgement of individual contributions
• fairness

Top executive behaviour

Based upon experience of working with clients, Gersling et al consultants with Andersen Consulting (now Accenture) describe the actions that top executives need to take to bring about and sustain a knowledge sharing environment or culture[12]. Senior executives they write must demonstrate commitment through the sponsorship of KM and motivate knowledge sharing behaviour through their own actions (Figure 3).

Figure 3 Action to change towards and sustain a knowledge-sharing environment

(Based on Gersting et al op. cit.)

The role of information and communication technologies (ICT)
An ICT infrastructure has, according to Zach[13] a contribution to make in the following areas:

• Capturing knowledge.
• Defining, storing, categorising, indexing, and linking digital objects that correspond to knowledge units.
• Searching for ('pulling') and subscribing to ('pushing') relevant content.
• Presenting content with sufficient flexibility to render it meaningful and applicable across multiple contexts of use.

In terms of technologies the following are important:

• Intranet: to support access and exchange both within an organisation and between it and close allies such as customers and suppliers.
• Data warehousing/repositories: the storage and making available knowledge wrapped in various degrees of context.
• Decision support systems: incorporating relevant knowledge.
• Group-ware to support collaboration: facilitating the sharing of ideas in a free-flowing manner including discussion between participants.
• Desktop video-conferencing: for person-to-person contact important for the exchange of tacit knowledge.
• E-mail: as for desktop video-conferencing.

Organisation, People or ICT?

Organisations apparently adopt an approach to KM which either emphasises organisation and people (HR) or the application of ICT. Few take an integrated approach. The experience of Andersen Consulting (Accenture) consultants is that efforts by HR or ICT people alone are likely to fail in KM. For success, there also has to be support from the top, the chief executive officer (CEO).

Ives and Gordon talking about the contribution of HR, IT and the CEO write:

'It appears that if only one of the three supports knowledge management, then nothing is likely to happen, if two of the three support knowledge management then something might get implemented, but it is unclear if it will get used or have sufficient power to have a lasting impact on the business. All three working together are necessary for real and lasting success.[14]

Defining a strategy

It may be the case however, that what the appropriate relative combination of HR and IT should be is itself an important issue. In some circumstances a heavier reliance on HR may be justified while in others the greater application of IT.

Hansen et al[15] have labelled an emphasis on HR a personalised strategy where knowledge is closely tied to the person who developed it and is shared via person-to-person contact. On the otherhand, a strategy reliant on IT they refer to a codification strategy, which approach which codifies knowledge which is then stored in databases and available for access by users.

Hansen and his associates believe (based on their study of companies in a number of industries) that to manage knowledge effectively strategy must predominantly be of the ‘codification’ or ‘personalised’ type. Attempts to excel at both they say are doomed to failure. They even go as far as suggesting an 80:20 split between using technology or people/organisational change as optimal.

The ‘codification’ route is appropriate they argue when the aim is to provide high-quality, reliable, re-usable information and knowledge quickly. Considerable reliance may be placed upon IT which codifies, stores, disseminates and allows re-use. Where on the other hand knowledge is ‘tacit’ (ie ‘personal’, ‘rich’, ‘subtle’ and highly ‘contextual’) and the aim is to provide creative, analytically rigorous advice through the channelling expertise. Success lies in developing networks, which link people, and a premium is placed on changing culture and individual behaviours. The contribution of IT is limited.

What are organisations doing?

Early interest in KM was directed towards the application of information and communication technologies no doubt taking what might be called ‘the line of least resistance’. The Ernst and Young study referred to earlier found 56% of respondents reporting changing people’s behaviour as the biggest problem in KM, while only 12% said ‘overcoming technological limitations’ was problematic. Current KM projects underway in the organisations studied (the study was conducted in 1997) in terms of incidence are shown in Figure 4. It is noteworthy that the top four have an unambiguous IT flavour.

Figure 4 Areas of current application of IT for KM

In the UK the expenditure on specialist software for KM is growing phenomenally with estimates of from £1.7bn in 1999 to up to £9bn in 2002. As far as the writer is aware, expenditures aimed at tackling the cultural, people and organisational impediments to KM are not known. This should not be seen as surprising as it is far easier to ‘cost’ for technology.

Measuring success in knowledge management

Although there is no reluctance among writers to advise on ‘success factors’ in KM (see discussion above) the precise measurement of its success or failure is problematic. Almost half (43%) of the Ernst and Young respondents found ‘measuring the value and performance of knowledge assets’ a difficulty and a minuscule 4% rated their own organisation’s performance as ‘good’ or ‘excellent’ in ‘measuring the value of knowledge assets/impact of knowledge management’.

As is usually the case with organisational processes, practices and changes it is extremely difficult to assess impact upon the ‘bottom line’ and resort frequently has to be made to measuring ‘inputs’ and ‘processes’.

The study by Davenport[16] of 31 KM projects (in automobiles, banking, consulting, high-tech manufacturing and other sectors) recognising the problems of measuring the economic return on knowledge used the following ‘indicators of performance’:

• Resources committed – people, money etc.
• Growth in the value of knowledge content (eg number of documents) and usage (volume of accessing knowledge repositories or participation in discussions).
• Likely survival of the initiative without the support of one/two individuals.
• Financial return of the KM activity itself (eg if linked with a profit centre) or to the organisation as a whole (perceptual if necessary).

Conclusion

For an economy in which growth is likely to be found in knowledge-based industries, knowledge management must be important. It would appear that the early faith placed in information and communication technologies in managing knowledge has been replaced by a more balanced view that recognises the need for cultural and behavioural change. Whether an 80:20 rule of thumb between a codification and a personalised strategy is the way forward remains to be seen. We can be assured that an appropriate relationship between the two strategies will exercise minds in the years to come.

References

1. The Institute of Chartered Accountants, 'Human capital and corporate reputation', Centre for Business Performance (2000).
2. Davenport, TH et al, 'Successful knowledge management projects', Sloane Management Review, Winter (1998).
3. Zach, MH, 'Managing codified knowledge', Sloan Management Review, Summer (1999).
4. Stewart, TA, 'Your company’s most valuable asset: intellectual capital', Fortune, October 3 (1994).
5. Ruggles, R, 'The state of the nation: knowledge management in practice', California Management Review, Spring (1998).
6. Ridderstrale, J, 'Business moves beyond bureaucracy', Mastering Management, Financial Times, November 6 (2000).
7. MacDonald, S, 'Harsh bosses get the thumbs down', The Times, May 25 (2000).
8. American Management Association (1998), ;AMA Survey by Fax', www.amanet.org
9. Ruggles, op.cit.
10. Ridderstrale, op.cit.
11. Evans, C, 'Developing a knowledge creating culture', Roffey Park Management Institute (2000).
12. Gersting, A et al, 'Implementing knowledge management: navigating the organisational journey', Knowledge Management, March (1999).
13. Zach, op.cit.
14. Ives, W and Gordon, C, 'Knowledge management journeys: navigating the IT/HR turfwars' (2000), www.accenture.com
15. Hansen, MT et al, 'What’s your strategy for managing knowledge?' Harvard Business Review, March-April (1999).
16. Davenport, op.cit.