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In recent years, knowledge management (KM) has created a competitive advantage for business helping it to understand its customer needs and wants. The evidence of this is in the substantial growth in the consulting sector. One of the primary services rendered is solving the problem of making decision-making information visible so that that business can act in response to trends revealed by that information. The byproduct of the process becomes KM. To take this one step further, does knowledge management create a competitive advantage for business? Business functions on two knowledge types, they are codified and tacit. To understand the difference in the two knowledge types, W. F. Lever defines them this way, "Codified knowledge or information is widely available through tele-communications systems such as the Internet. It facilitates most businesses' efficiency by widening supplier bases and access to markets, notifying the existence of producer services, widening labour sheds and labour fields, and providing financial information. However, as it is available to all at low or zero cost, is ubiquitous, and is unambiguous, it confers no competitive advantage on its recipients. Tacit knowledge, on the other hand, is available only to limited numbers of contacts, often requires to be passed face-to-face because it is important that risk and ambiguity be minimised, and does confer competitive advantage on its recipients (p. 861)." In the context of codified and tacit knowledge, KM accounts for both types, blends them and seeks to leverage them to the fullest extent of competitive advantage. The field of KM is not new, but the practical understanding and formalized approach to analyzing knowledge for business application is a fairly recent discipline. Certain types of business have been knowledge intensive for most of their existence. Knowledge intensive firms are fairly easy to recognize like accounting, law and medical practices. They depend greatly on accumulated bodies of knowledge that are codified. A concise definition of these business types is, "a company where most of the work can be said to be of an intellectual nature and where well qualified employees form the major part of the workforce." (Robertson and Hammersley p. 241) Much of what happens with KM also translates into a Corporate IQ where firms predicate their KM systems on the ability to connect, share and structure information (Haeckel and Nolan p. 126). The higher the Corporate IQ, the better the connection and sharing of structured information within the organization. That being said, not all KM has to be completed in the form of computer systems and electronic networks. Historically, one can deduct that a KM could be seen as books in a firm's library in combination with briefs or files that refer to past business activity. The hand written or type annotations could give a newly minted accountant, lawyer or doctor a relatively strong sense of direction about where the firm was headed in the past and what the future path should look like going forward. They would also be able to determine the value of their contribution by looking at their own specialized training against the historical references to see if they were a good fit for the organization. At that point, the knowledge management cycle for understanding of legacy knowledge would be complete and new knowledge could be added to the knowledge base for others to access going forward into the future. To achieve and maintain a competitive advantage by leveraging KM, a firm is faced with several challenges. One is ensuring that the knowledge the company holds is imitable but only to the extent that it can be done so internally to the business. As Russell Coff et. al. states, "If a firm is fortunate enough to obtain such resource [knowledge], those assets will still probably be scarce, even within the firm. For example, if an individual has valuable tacit knowledge that attracts customers, the demand for his or her time will quickly exceed supply (Teece, 1982). Thus, to leverage tacit knowledge into a significant advantage, the firm must be able to 'scale up' to meet demand for the resource." The major hurdle then becomes achieving the scale that is necessary to distribute the knowledge effectively so that others in the business can use it for the firm's success. Another challenge business faces is having the correct enablers in places to facilitate KM. Heeseok Lee and Byounggu Choi identified that care is a key enabler which enables knowledge to be created and shared without concern for the implications of offending people in the process (p. 188). For some organizations, re-engineering their structure (both physically and mentally) becomes too high a price for the firm to pay. The potential yield in competitive advantage is not great enough to risk changing the status quo. For example, a business like product assembly has primary business objectives that are not currently well suited for modern KM systems; thus KM would not be a distinct advantage for them to pursue. This is due primarily to factors related to the direct output of the business. Product assembly has standardized workflow and codified business processes. Once the assembly line is working to construct the end product; little knowledge related changes will occur during the product life cycle. Thus a KM could easily be reduced to manuals, policies and procedures. The published or electronic library might cost more than the products being assembled. Without a high value placed on professional learning and collaborative workspace, KM may generally fail to reach its full potential in the organization. Carol Rozwell highlighted this fact, "Unfortunately, fewer companies are addressing the synergistic connection among knowledge management, collaboration and learning by instituting a learning strategy and architecture that supports the range of activities required for learning and performance (p. 2)." Providing knowledge workers with appropriate access to both elements proves costly in time and money. The cultural change required to accommodate the functions is also not an easy pill for business to swallow. A final KM issue that should be highlighted is that the lack of a coherent business model designed with KM in mind, will cause any competitive advantage create by KM to evaporate. Without the processes and accountability clearly defined for the information being housed in KM systems, the firm will always have the Information Technology (IT) department acting as a conduit between the management policy and its execution (Haeckel and Nolan p. 127). This proposition truly adds in overhead that can stifle the successful distribution of knowledge within the organization base only on the overhead created by having an additional department creating the KM model as it see fit. When business takes on KM and implements it properly, the function yields advantages that go beyond the bottom line. Gautam Rey et. al. provide a clear example of this advantage, "In the context of the customer service process, it is the knowledge that the IT manager possesses about the customer service process, the knowledge that the customer service manager possesses about the potential opportunities to apply IT to improve customer service, and the common understanding between the IT and the line manager regarding how IT can be used to improve customer service process performance that constitute the construct we refer to as shared knowledge. Shared knowledge is, therefore, an important capability that enables the organization to conceive, effectively implement, and use IT applications to improve customer service process performance (p. 631)." This illustration points to the connections within KM that make it a key tool for competitive advantage. It highlights the sharing nature of KM, the link between IT and KM and finally the potential improvement that can be unlocked in the process of applying KM effectively. Xerox Corporation commissioned a study to determine the application of KM in the European business community. The figures below indicate how serious business is about the application of KM: 87% of directors believe they could enhance their company's competitiveness if they improved the way they manage knowledge. 64% believe retaining knowledge workers is more important than cutting costs. Only 19% disagree. 76% agree that building and sharing knowledge is important for their company. When looking at the usefulness of KM, the results are just as supportive: 83% say IT has increased productivity, and only 19 percent say it has reduced creativity. 83% agree that when it comes to specifying an IT system, considering the impact of IT on employees is an important factor (Williams, p. 8). Allan Williams defines the survey scope by stating that, "The survey interviewed 1,004 directors or their deputies in six European countries - the UK, France, Italy, Germany, Sweden, and Switzerland. All of the companies involved have a turnover of more than UK£75M (¢¬118M) and nearly all have more than 500 employees. Respondents came from a cross-section of industries (finance, manufacturing, pharmaceutical and utilities) and departments (IT, Finance, HR, and Purchasing) (p. 8)." This is by no means inclusive, but serves as a solid bench mark for the establishment of KM in business. Caterpillar Corporation is a perfect example of KM that improves the bottom line. The corporate culture has always been one of openness and sharing according a Jim Coffey, a 31-year employee. Building upon 75 years of successful, informal KM, Caterpillar built the Knowledge Network on an established foundation. As organizational change moved the company from silos to business units, the over 70,000 employees found it difficult keep track of their counter parts who had been their subject matter experts over coffee or lunch discussions. The solution became the Knowledge Network (Powers, pp. 41-42). The analysis of Caterpillar by American Productivity and Quality Center (APQC) as reported by KM Review looked at the investment Caterpillar made in the Knowledge Network and the estimated return on investment (ROI). In 2000 until 2003, $2.5 million was spent on the system. Through increase efficiency and productivity as well as cost reduction, the estimated savings generated by this KM system is projected to be $75 million (pp. 6-7). As the article explains, "Caterpillar saved $10 for every $1 spent (p. 7)." This was demonstrated by the bolted joints and fasteners and Caterpillar dealer service training communities ROI figures of 212% and 738% respectively (p. 7). Another example of KM being effectively applied comes from the oil land gasoline sector. Steve Prokesh highlights some of the changes that occurred at British Petroleum (BP) based on former chief executive officer Sir John Browne's adaptation of KM. The flattening, connecting and realignment of BP's business structure took the company from being an also-ran to being one of the top performing companies in its sector. BP actually resembles a high technology software or hardware company more than a typical oil firm. The strategy to leverage knowledge better, faster and more effectively than their competitors has transformed BP completely. As Sir John Browne states, "Any organization that thinks it does everything the best and need not learn from others is incredibly arrogant and foolish (p. 147)." This point drives right to the heart of KM. KM is shared and facilitates learning, sharing and innovation. Without effective KM, BP's story might be radically different. As a result of KM, BP moved from being heavily in debt ($16 billion down to $7 billion) to being able to re-invest in better technology and processes to further its advantage in oil exploration based on excess profits (p. 148). At Skandia AFS, the measurement of KM extends further into the role of intellectual capital, a single attribute of KM. Using a model called the Skandia Navigator, which they describe as a "'taxonomy of intellectual capital reporting,' where intellectual capital is 'hidden values of an organization. It is a management and reporting model that helps manager visualize and develop measures that reflect the intangible assets (Skyrme and Amidon p. 22)." Illustration 1 The Skandia Navigator model a Source: Skyrme, David J., and Debra M. Amidon.. "New measures of success." Journal of Business Strategy 19.1 (Jan. 1998): 20 illustration 2. a The illustration shows the people, process and technology involved in KM. As David Skyrme and Debra Amidon explain the Navigator, "A tool such as the Navigator takes several years to develop and apply in a given organization. In Skandia's case, the first stage was gaining the acceptance of the notion of measuring intellectual capital. The second stage was the development of appropriate metrics for the business unit selected for the pilot. The third, and most difficult stage, was gaining commitment from senior management to apply it throughout the whole organization. (p. 22)" Table 1 Example of Measures Used in the Scandia Navigator (DIAL) b Source: Skyrme, David J., and Debra M. Amidon.. "New measures of success." Journal of Business Strategy 19.1 (Jan. 1998): 20 table 1. b The table shows the tangible RIO achieved by placing a valuation on intellectual capital and its cultivation. As a result, the Navigator has become a model that is well qualified to measure RIO at Skandia on intellectual capital which feeds KM. The help KM succeed within business; best practices should be applied to ensure momentum and progress. Jeff Mann defines the following KM best practices: Encourage employees take a personal stake in making the KM work. Provide change agents and mentors who understand and believe in the initiative to help others who are in the middle ground. Make KM processes part of the everyday work processes. No separation or additional overhead required to execute the processes. Use KM or lose KM. Understand that the question of how to use knowledge is more important than how to collect knowledge. Look for multipliers that make KM an easy win. Evaluate areas that are already in the practice of using KM. Highlight them as examples to other business units that currently don't have KM, but should follow the leader in adapting to the system. Sell the business value, not just the concept. Without marketing how the new processes and system will improve people's work, KM is not going to take root. Place discussion in terms of business; working smarter not harder. Do not get caught in the pay for play model. Encouraging the adoption of KM is appropriate, but without incentives. Monetizing the KM behavior may ultimately undermine its acceptance as just another scheme rather than an organizational change (pp. 2-5). Keeping mind that this is not an exhaustive list of best practices, but a solid place to start, business can benefit by understanding at the outset how to make KM work before the first line of instruction is typed. In conclusion, KM can yield a distinct competitive advantage for firms that are inherently geared toward the consumption and creation of knowledge. The practical application is not without peril, especially to organizations that have management styles and structure which are not flexible enough to adapt to the practice. Some business sectors have been practicing KM for quite a time, long before "knowledge management" became a field of study. Many firms, such as high technology software and hardware companies, build their organizations from the ground up using KM as the cornerstone. Other business, product assembly, may not need KM to be successful in the current business climate. As well, current ROI figures for KM point to an increase in savings or profit, but are anecdotal at best. This is not to say that KM does not yield competitive advantage. It does indicate that KM is a significant contributor to competitive advantage and overall business success. The climate is changing and KM will become the standard by which the best in business will be separated from the rest in business. Works Cited Coff, Russell W., David C. Coff, and Roger Eastvold. "THE KNOWLEDGE-LEVERAGING PARADOX: HOW TO ACHIEVE SCALE WITHOUT MAKING KNOWLEDGE IMITABLE." Academy of Management Review 31.2 (Apr. 2006): 452-465. Business Source Premier. EBSCOhost. Excelsior Coll. Lib., Albany, NY. 19 Apr. 2008. < http://search.ebscohost.com >. Haeckel, Stephan H. and Richard L. Nolan. "MANAGING BY WIRE." Harvard Business Review 71.5 (Sep. 1993): 122-132. Business Source Premier. EBSCOhost. Excelsior Coll. Lib., Albany, NY. 11 Apr. 2008. < http://search.ebscohost.com >. Lee, Heeseok and Byounggu Choi.. "Knowledge Management Enablers, Processes, and Organizational Performance: An Integrative View and Empirical Examination." Journal of Management Information Systems 20.1 (Summer 2003): 179-228. Business Source Premier. EBSCOhost. Excelsior Coll. Lib., Albany, NY. 11 Apr. 2008. http://search.ebscohost.com. Lever, W. F. "Correlating the Knowledge-base of Cities with Economic Growth." Urban Studies 39.5/6 (May 2002): 859-870. Academic Search Premier. EBSCOhost. Excelsior Coll. Lib., Albany, NY. 1 June 2008. http://search.ebscohost.com. Mann, Jeff. "Best Practices for Knowledge Management, 2007". Gartner Incorporated. Stamford, CT. 31 Aug 2007. "Measuring knowledge networks at Caterpillar." KM Review 7.3 (July 2004): 6-7. Academic Search Premier. EBSCOhost. Excelsior Coll. Lib., Albany, NY. 31 May 2008. http://search.ebscohost.com. Powers, \/icki. "Virtual Communities At Caterpillar Foster Knowledge Sharing." T+D 58.6 (June 2004): 40-45. Academic Search Premier. EBSCOhost. Excelsior Coll. Lib., Albany, NY. 29 May 2008. http://search.ebscohost.com. Prokesch, Steven E. "Unleashing the Power of Learning: An Interview with British Petroleum's John Browne." Harvard Business Review 75.5 (Sep. 1997): 146-168. Business Source Premier. EBSCOhost. Excelsior Coll. Lib., Albany, NY. 11 Apr. 2008. < http://search.ebscohost.com >. Robertson, Maxine, and Geraldine O'Malley Hammersley.. "Knowledge management practices within a knowledge-intensive firm: the significance of the people management dimension." Journal of European Industrial Training 24.2-4 (2000): 241. Business Source Premier. EBSCOhost. Excelsior Coll. Lib., Albany, NY. 19 Apr. 2008. < http://search.ebscohost.com >. Rozwell, Carol. "Findings: What's Learning Got To Do With It?" Gartner Incorporated. Stamford, CT. 9 Apr. 2008. Skyrme, David J., and Debra M. Amidon.. "New measures of success." Journal of Business Strategy 19.1 (Jan. 1998): 20. Business Source Premier. EBSCOhost. Excelsior Coll. Lib., Albany, NY. 26 May 2008. http://search.ebscohost.com. Williams, Alan. "KM-project ROI should be visible to directors." KM Review 5.6 (Jan. 2003): 8. Academic Search Premier. EBSCOhost. Excelsior Coll. Lib., Albany, NY. 29 May 2008. . |
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