knowledge management drivers

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Research Paper: RPECBPM/00023

Copyright 2010 www.ecbpm.com Page 1

Knowledge Management Drivers:

Lessons from a UK and USA based survey

Research Paper: RP-ECBPM/0023

By

Dr. Yasar F. Jarrar & Prof. Mohamed Zairi Mrs. Elaine Aspinwall

Copyright 2010 www.ecbpm.com


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KNOWLEDGE MANAGEMENT DRIVERS:

LESSONS FROM A UK AND USA BASED SURVEY

Yasar F. Jarrar

European Centre for Total Quality Management

University of Bradford

Emm Lane, Bradford

BD9 4JL

United Kingdom

Tel - + (0) 1274 23 4319

E-mail [email protected]

Professor Mohammed Zairi

SABIC Professor of Best Practice Management

European Centre for Total Quality Management

University of Bradford

Emm Lane, Bradford

BD9 4JL

United Kingdom

Tel - + (0) 1274 23 4313

E-mail [email protected]

Mrs. Elaine Aspinwall

University of Birmingham

Edgbaston

Birmingham B15 2RF

United Kingdom

Tel - + (0) 121 414 4249E-mail [email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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ABSTRACT

The importance of intellectual capital and the management of knowledge are strongly emerging themes

in todays organisational world (Chase, 1997). Many authors and practitioners (Quinn, et al., 1996, Matinez,

1998, Numri, 1998, Albert and Bradly, 1997) note that the emerging patterns are that intellectual capital willreplace natural resources, commodities, finance, technology and production processes as the key factor

influencing competitive advantage. This is because, with the exception of intellectual capital, everything else

(IT, materials, and technical information) is available to everyone on more or less the same terms. The

success of a corporation will lie more in its intellectual and systems capabilities than in its physical assets.

After introducing the concept of knowledge management and its basic definitions, this paper presents the

results of a survey of leading UK and USA organisations, which focused on identifying the drivers of

knowledge management. The survey includes an overview of organisational perceptions of the increasing

importance of knowledge. Moreover, it reports on the major drivers for knowledge management in leading

organisations and attempts to answer the question on everyones mind: is knowledge management another

fad or is it a requirement for future performance excellence?

As we live in a world characterised by globalisation and free flow of information, the findings of this

study are of extreme relevance to Southeast Asian companies, since it is believed that the same drivers

which popularised knowledge management in the West will affect, if they have not already affected, the

region. This study should provide insights to those embarking on such programmes in Southeast Asia.


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1. THE AGE OF KNOWLEDGE

The attention being paid to knowledge management (KM) has been growing very fast. Business

magazines, books, and journals are publishing countless theories and business cases on knowledge

management and related topics, and the number of conferences organised all over the world is growing

exponentially. But why is this concept generating so much hype? And what are its major drivers?

The importance of intellectual capital and the management of knowledge are strongly emerging themes

in todays organisational world (Chase, 1997). Many authors and practitioners (Quinn, et al., 1996, Matinez,

1998, Numri, 1998, Albert and Bradly, 1997) note that the emerging patterns are that intellectual capital will

replace natural resources, commodities, finance, technology and production processes as the key factor

influencing competitive advantage. This is because, with the exception of intellectual capital, everything else

(IT, materials, end technical information) is available to everyone on more or less the same terms.

Knowledge is now a crucial factor underpinning economic growth. Producing goods and services

with high value-added is at the core of improving economic performance and international

competitiveness, increasing intangible investment, which is difficult to measure, and has become a

major issue for enterprises and governments Former Secretary General, OECD (quoted in

Skyrme, 1998).

In short, the main theory proposed by the advocates of knowledge and intellectual capital management is:

the success of a corporation lies more in its intellectual and systems capabilities than in its physical assets. It

is believed that in this evolving knowledge environment, both individuals and organisations will have one

source of competitive advantage: intellectual capital. This represents an individuals (or organisations)

accumulated knowledge and know-how, coupled with the ability to decant this into a system to create value.

In support of these claims, a survey of Fortune 1000 executives (Quinn, 1997), revealed that 97% of

respondents said there were critical business processes that would benefit from more employees having the

knowledge that was currently with one or two people, and 87% said costly mistakes are occurring because

employees lack the right knowledge when it is needed. Moreover, to emphasize this increasing importance

of knowledge management, the recent changes to the EFQM Business Excellence Model have included the

addition of two sub-criteria that address knowledge management (EFQM, 1999).

So it does not come as a surprise to find many organisations have already embarked on some form of

knowledge management system. A report by Business Intelligence (quoted in Numri, 1998), claimed that

successful KM programmes can produce returns of hundreds or even thousands of per cent. Still, the same

report emphasised that KM is a very young discipline. In fact, in a recent survey using the Knowledge

Management Assessment Tool (KMAT), a benchmarking tool devised jointly by the American Productivity

and Quality Centre (APQC) and Arthur Andersen (quoted in Zairi and Ahmed, 1999), only 15% of the

organisations reported that they were satisfied with their ability to manage knowledge strategically.


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2. WHAT IS KNOWLEDGE?

In order to successfully manage knowledge, it is prudent to clearly define it. The definition of knowledge

adopted here is information combined with experience, context, interpretation, and reflection. It is a high-

value form of information that is ready to apply to decisions and actions (Albert and Bradley, 1997).

Business knowledge generally is of two types:

1. Codified knowledge - Knowledge that can be written down, transferred, and shared. It is definable andcan be protected by the legal system.

2. Tacit knowledge - know-how, and is by nature difficult to describe. It can be demonstrated but rarelycodified, and resides with its holder. It gets transferred through demonstration and on-the-job training.

Examples include process knowledge in manufacturing firms, and relationship knowledge in service

firms.

From an accounting point of view, physical assets have an expected life over which they are useful in

generating income or benefits. In stark contrast, information and knowledge assets could in theory last

forever (Martinez, 1998). This open ended value of knowledge assets means that there is no one-to-one

correspondence between the effort required to create them and the value of the services that they yield.

The source of business knowledge in any organisation is its intellectual capital, which is defined as the

difference between a firms market value and the cost of replacing its assets. It is those things that we

normally cannot put a price tag on, such as expertise, knowledge and a firms organisational learning

capability (Hall and Andriani 1998). It has three major components as classified by many practitioners

(Edvinsson, 1996, Hall and Andriani 1998, Numri, 1998):

1. Human capital: the knowledge that each individual has and generates. Within an organisation, it is thecollective capabilities of employees to solve customer problems, and the firms capability to extract the

best solutions from the knowledge of its people. It includes the collective experiences, skills, and general

know-how of all the firms employees. This kind of capital is rented, not owned, and must be managed

accordingly. Gaining access to the power of a firms human resource often means knowing what piece of

information or knowledge is relevant, which employee has it, and the speed with which the knowledge

can be shared.

2. Organisational (Structural) - organisational capital is that knowledge that has been

captured/institutionalised within the structure, processes, procedures, plans, and culture of anorganisation. It is the know-how contained in the companys distinctive processes and competencies.

This is much more amenable to management control. It is the infrastructure that firms develop to

commercialise their human capital, and provides the environment that encourages the human resources

to create and leverage knowledge. It includes both direct and indirect support, and for each there are both

physical and intangible elements. Direct physical support includes an open structure, and easy access to

computers while intangible aspects include computer software, work procedures, and marketing plans.

Indirect physical support includes buildings, light, etc., and the intangible aspect includes strategic plans,

and payroll. All these aspects should be designed and managed to maximise intellectual output.

3. Customer (Relational) - refers to the organisations relationships or network of associates and their

satisfaction with, and the loyalty to, the company. It includes knowledge of market channels, customer

and supplier relationships and agreements, industry associates and a sound understanding of the impact ofgovernment public policy. Like human capital, customer capital is shared, not owned, and can only be

managed as a joint enterprise between the firm and its partners.


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3. WHAT IS KNOWLEDGE MANAGEMENT?

Knowledge management means the strategies and processes of identifying, capturing, and leveraging

knowledge to help the firm compete (American Productivity and Quality Centre, 1997).

In order to maximise value to customers, we must have an outstanding capability to create, enhance,

and share intellectual capital across ICLs global organisation, knowledge management is a

shorthand term covering all the things that must be put in place e.g. processes, systems, culture and

roles to build and enhance this capability. ICLs definition of KM (quoted in Lank, 1997).

In general, knowledge management is the process of continually managing knowledge of all kinds to

meet existing and emerging needs, to identify and exploit existing and acquired knowledge assets and to

develop new opportunities (Quintas, 1997). It is a systematic process of underpinning, observation,instrumentation, and optimisation of the firms knowledge economies (Demarest, 1998). Its overall purpose

is to maximise the enterprises knowledge related effectiveness and returns from its knowledge assets and to

renew them constantly (Wiig, 1997).


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4. STUDY OBJECTIVES AND PARTICIPANTS

The objective of the study presented in this paper is to identify the major factors that are driving the

interest in, and rapid spread of, knowledge management. It is hoped that by identifying these, it would be

possible to conclude whether the advocates of the concept have substantial grounds or whether the wholemovement is just another management fad. This study is a part of a larger research project where the

objectives were to identify the best practices for people and knowledge management for future

performance excellence. For the purpose of the study, questionnaires were sent to senior managers in

leading UK and USA organisations from all sectors. The only criteria for sample selection was that

organisations taking part had to be leaders in their field (the assumption was that leading organisations

would provide the best insights into best practices). The sources used to select the sample were successful

case studies published in the literature, recognised market leaders (e.g. Fortune 500), and quality award

winners (e.g. EQA, MBNQA). A further selection process involved the individuals to be contacted. Where

possible, the contact was the most senior manager in the organisation. In total, 300 questionnaires were sent

out and 75 were returned giving an overall response rate of 25%. Participating organisations included

Andersen Consulting, Kodak, IBM, Royal Mail, Trident, Jaguar, Rover, KPMG, Boston Consulting Group,Yamaha, Honda, Ames Rubber Corporation, Globe Metallurgical Inc., Xerox, Skandia, DHL, among others.

The organisations that responded came from the manufacturing (44.3%) and services (55.7%) sectors.

The manufacturing sector included industrial and consumer goods manufacturers like automotive, auto parts,

medical products, and office equipment. The service sector included business consulting, banking and

financial services, food retail, advertising, IT consulting, courier, insurance, and education. All the

respondents were experienced practitioners at senior levels in their organisation. Figures 1 shows a

breakdown of the respondents by job function.

Figure 1 - Breakdown of study participants by job functions

0 10 20 30 40 50 60

Process / Operations

Quality Head

Human Resource Management Head

Senior Management (CEO, MD, GM)


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However, in the days before re-engineering dramatically downsized the middle management ranks,

middle managers were often the most knowledgeable people in the firm about what was happening, what

was relevant, and who had the relevant information or skill. Now middle managers are largely absent and

firms are struggling to figure out who knows what (Edvinsson, 1996). Organisations have went through

several waves of downsizing, re-structuring, and re-engineering in the last decade. These actions have

helped cut cost in the short term, and produced positive streamlining effects in some cases, but manyorganisations have realised, although too late, that they lost a wealth of intellectual capital.

Moreover, 85.2% of the respondents agreed that there was an erosion of employment security and

predictable career paths. So although organisations might be more clever about downsizing, volatile market

conditions and intense competition have deprived organisations and employees from being able to have long

term stability.

For these reasons, organisations feel that the more they can upload knowledge from brains into systems

and procedures, the more they can control it and the less they depend on individuals. This seems to be a

major driver for initiating knowledge management initiatives.

Clearly, people are an enterprises main asset (they hold the bulk of the organisations knowledge), but

they can walk out the door at any time. Still, enterprises want to service their customers on a continuous

basis. By transforming individual knowledge into collective knowledge, enterprises are not only trying to

reduce the risk of knowledge erosion but also increase the speed with which knowledge can be made

productive (American Productivity and Quality Centre, 1997).

5.4 Availability of knowledge management tools and methods

The major tool and enabler for knowledge management is IT. IT has dramatically matured in the past few

years and employees now have easier access to knowledge databases, knowledge networks, etc. IT

investments provide instant information access within and outside the corporation and provide a means to

create and capture knowledge (Stivers and Joyce, 1997). The availability of such powerful technology has

clearly encouraged organisations to manage the available knowledge, as study respondents identified this as

the fourth most important driver for knowledge management initiatives. People say knowledge

management is not about information technology and its not, but I challenge you to try to do it without IT

American Productivity and Quality Centre President (ODell, 1996).

From the vendor standpoint, the new KM offerings are coming considerably closer to being turnkey

solutions. Today's KM systems can locate information in a variety of different data stores (both internal and

external), deliver information to users when they need to receive it, refine and analyse information, and offer

a collaborative environment for users to share information (Andrews et al, 1999). The vendors are also

doing a much better job of articulating their value propositions. Add to this the fact that more vendors have

entered the KM market and are now reporting solid sales growth.


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5.5 Fashion / fad

Given all the current enthusiasm for knowledge management and its potential, there are still sceptics who

see it as a passing fad. The study revealed that 8% of the participants subscribe to this view. The

organisational world has become flooded recently with latest ideas and techniques, so much so thatorganisations have increasingly become very suspicious of these so called new approaches. Defendants of

knowledge management quickly argued that Knowledge management is broad, multi-dimensional, and

covers most aspects of the enterprises activities. In contrast, fads have gained popularity by focusing on

limited scope to simplify the problem setting. Whereas simplicity has been their attractiveness, it has also

been their weaknesses (Wiig, 1997).

However, those wary of knowledge management being yet another management fad are also justified in

posing key questions. For instance, Quintas (1998) asks whether the trend toward knowledge management

adequately defined and identified, and is what is perceived to be happening genuinely new and different? Hegoes on to question whether anything meaningful can be said in order to guide the knowledge management

process is knowledge manageable in terms of management as a process with which we are familiar, or is

knowledge management an oxymoron? From these arguments, one may conclude that knowledge might be

seen as a component of all forms of human and organisational activity, rather than a subject of concern in

its own right. Only time can tell. ODell (1999) argues that being a fad is just a natural stage that all ideas

(good or bad) go through.


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6. CONCLUSIONS

When asked whether they think that all organisations need a structured knowledge management system,

78% of study participants strongly agreed. Although KM is a very young discipline, the results of the

study clearly revealed a considerable awareness of the importance of intellectual capital. In the currenttransformation from physical production to knowledge work, enterprises are increasingly dependent upon

data, information, and the means to communicate and manipulate these resources. Organisations realise that

the existence of a stock of knowledge (intellectual capital) is not enough to account for the high value in the

marketplace associated with many knowledge companies. Indeed, it is the ability of companies to leverage

their intellectual capital that is perhaps a greater key to profitability. Fundamentally, knowledge is a more

important asset than land, labour, and capital and must be managed as such instead of leaving it to chance

(Morrissey, 1998). Competitive advantage will go to those organisations that effectively generate, maintain

and exploit knowledge of their task domains and themselves, thus, there is a strong need for organisational

KM (Whitaker, 1996).

The study also revealed that this awareness and acknowledgement of intellectual capitals importance is

shared between manufacturing and service industries alike (81.5% of manufacturing organisations and 88%

of service organisations agreed that intellectual capital will surpass physical assets to form the bulk of the

future organisations value). This fact opposes the dominant perception that service industries (software,

health-care, financial services, communications, and consulting) are the most enthusiastic about KM as it is

clearly identified in their work. Intellectual capital is clear in manufacturing industries as well (professionals

generate the preponderance of value-through activities like research and development, process design,

product design, logistics, marketing, or systems management) and the study showed that these organisations

are aware of this aspect.

The study results have put forward a case for the need for knowledge management. All the indicators

point to the increasing importance of knowledge and the trend seems to be that knowledge management will

soon be part of the way organisations do their business. The knowledge revolution is here and no one can

afford not to be involved. It is time to manage knowledge.


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