The College of Business

Knowledge Management

R. Nat Natarajan and Cass L. Larson

Managing the processes related to learning and the application of knowledge will be one of the most important performance excellence challenges facing organizations in the 90s and into the next century. This challenge is a natural outcome of the information economy—an economy in which a large part of the value added in products and services derives from knowledge. In today’s organizations, the statement "knowledge is power" applies with more relevance than ever before.

The value of the physical assets of Microsoft is just a tiny fraction of that of General Motors (GM), yet Microsoft has a higher market value than GM. Economists have long known that knowledge is the only factor of production that is not subject to diminishing returns but only now are organizations trying to learn how to manage knowledge as an asset. While plant, equipment, and buildings start to depreciate from the moment they are put into operation, knowledge is an appreciating asset. Physical goods exist in finite amounts. At any given time someone can have more of a good only if someone else has less of it. Not so with knowledge—knowledge can be shared with others without diminishing ones’ own stock of it.

It is important to distinguish between knowledge and information. Information can be considered as the codified and formal part of knowledge. Knowledge also consists of a tacit component—procedures and rules that are not codified or articulated. It also includes experience that can be accumulated by individuals through observation, apprenticeship and learning-by-doing.

Simply put, knowledge management (KM) is about developing and harnessing the organization’s collective brain power. This brain power for instance could relate to knowledge that employees have about production processes, customers, and ideas for new products/services. In this sense, people truly are the most important assets of an organization! One can identify three phases of KM: knowledge acquisition; knowledge dissemination, and knowledge utilization. In practice, these phases do not necessarily follow in a neat linear fashion.

If knowledge, like any other asset, is to be leveraged and turned into a competitive advantage, then KM has to be linked to overall strategy. This is because organizations are not interested in knowledge for knowledge’s sake. All three phases of KM mentioned above consume resources and therefore these resources have to be allocated keeping in mind the linkage to corporate objectives. How this linkage is established varies from company to company. For instance, Sony maintains a rather loose coupling between directing the knowledge gathering efforts of its R&D staff and corporate objectives, whereas 3M has a well-defined process by which its scientists, acting as intrapreneurs, may develop and propose complete business plans based on their own research ideas. Sometimes relevant knowledge resides outside the organization’s boundaries, e.g., with customers, suppliers and in the best practices of other firms. This knowledge also must be systematically acquired and put to use in the organization. For example, benchmarking the best practices of other companies will help to close performance gaps if benchmarking processes are linked to goals and strategies of the knowledge-seeking firm.

Through dissemination and sharing, individual knowledge is transformed into system-wide knowledge. All employees in an organization possess knowledge about problems and solutions, situations, and best practices. As long as this information stays solely with these individuals, there is little benefit to the overall organization. If key knowledge of each worker could be captured and shared for the use of all other employees, the benefit to the organization would compound. When knowledge is shared, organizations save time and resources in duplication. This sharing process is enabled in two important ways: high tech i.e., information technology and high touch i.e., organization culture.

With the advances in communication and information technologies, costs of reproduction and transmission of the information component of knowledge have been significantly reduced. Therefore, improvements in personal productivity achieved through computers for example, could be turned into improvements in organizational productivity through networking. Easy sharing of knowledge also raises an interesting paradox--knowledge that can be shared easily cannot be permanently captured by the organization. The benefits of such knowledge can be captured by other organizations as well. The implication is that to build its core competencies the company should invest in those kinds of knowledge and/or knowledge combinations that cannot be easily duplicated by competing organizations.

Most firms and consultants focus on information systems as the means to share knowledge. Companies such as 3M, GE, Hewlett-Packard, and US West use a centralized process of knowledge mapping to share best practices and other valuable information throughout the organization. Arthur Andersen both uses and promotes intranet technology as a means to share. However in many companies, informal sharing is more important. Xerox found that casual chat was a very effective tool for sharing knowledge, one that was discouraged only a few years ago. Learning is social. A sharing culture provides the medium for knowledge to move through the organization.

Knowledge management in most organizations is about building an environment that allows easy knowledge flow. This environment is often the type found in firms with quality management and/or learning environment approaches. Effective organizations have processes that break down barriers between individuals for many reasons, including good knowledge flow. Organizational form will have direct impact on knowledge management techniques. Teams provide a basis for problem solving, organizational learning and knowledge management. Companies that build teamwork more readily convert individual knowledge to system knowledge.

The third phase of KM--knowledge utilization, depends on a number of organization-related factors such as job design, autonomy , performance measures and incentives. Technology can help but a lot more depends on whether teams and individuals feel motivated and appreciated enough to apply the knowledge they have to their work. Recognizing this, companies are increasingly focused on education and empowerment to increase the competence and commitment of their workforce and turn them into true knowledge workers.