Knowledge Introduction
Enterprises are realising how important it is to "know what they know" and be able to make maximum use of the knowledge. This knowledge resides in many different places such as: databases, knowledge bases, filing cabinets and peoples' heads and are distributed right across the enterprise. All too often one part of an enterprise repeats work of another part simply because it is impossible to keep track of, and make use of, knowledge in other parts. Enterprises need to know:
· What their knowledge assets are.
· How to manage and make use of these assets to get maximum return.
Most traditional company policies and controls focus on the tangible assets of the company and leave unmanaged their important knowledge assets. Success in an increasingly competitive marketplace depends critically on the quality of knowledge which organisations apply to their key business processes. For example the supply chain depends on knowledge of diverse areas including raw materials, planning, manufacturing and distribution. Likewise product development requires knowledge of consumer requirements, new science, new technology, marketing etc.
Definition
Knowledge assets are the knowledge regarding markets, products, technologies and organisations, that a business owns or needs to own and which enable its business processes to generate profits, add value, etc. Knowledge management is not only about managing these knowledge assets but managing the processes that act upon the assets. These processes include: developing knowledge; preserving knowledge; using knowledge, and sharing knowledge. Therefore, Knowledge management involves the identification and analysis of available and required knowledge assets and knowledge asset related processes, and the subsequent planning and control of actions to develop both the assets and the processes so as to fulfil organisational objectives.
Knowledge-based Theory of the Firm
The cognitivist perspective assumes organisations to be open systems, which develop knowledge by formulating increasingly accurate “representations” of the world. The more data and information organisations can gather the closer the representation will be. Hence most cognitivist perspectives equate knowledge with information and data.
According to the connectionist epistemology the organisation still “represents” its outside world, but the process of representation of reality is different. As in cognitivist epistemology information processing is the basic activity of the system. Autopoietic epistemology provides a fundamentally different understanding of the input to a system. Input is regarded as data only. Knowledge is private, a notion which comes close to (Polanyi’s,1958) concept of “personal” knowledge.
Building on (Polanyi,1958) and (Wittgenstein,1995), (Sveiby,1994,1997) defines knowledge as a capacity-to act, (which may or may not be conscious). The emphasis of the definition is on the action element: A capacity-to-act can only be shown in action. Each individual has to re-create his or her own capacity to act and reality through experience – a view which is akin to constructivism (von Glaserfelt,1988).
Knowledge defined as a “capacity-to act” is dynamic, personal and distinctly different from data (discrete, unstructured symbols) and information (a medium for explicit communication). Since the dynamic properties of knowledge are in focus, the notion Individual Competence can be used as a fair synonym.
Strategy Formulation
The word “Strategy” is usually associated with activities and decisions concerning the long-term interaction of an organisation with its environment. While competitive-based and product-based strategy formulation generally makes markets and customers the starting point for the study the resource-based approach tends to place more emphasis on the organisation’s capabilities or core competences.
A knowledge-based strategy formulation should thus start with the primary intangible resource: the competence of people. People are seen as the only true agents in business; all tangible physical products and assets as well as the intangible relations are results of human action, and depend ultimately on people for their continued existence. People are seen to be constantly extending themselves into their world by both tangible means, such as craft, houses, gardens and cars and intangible corporate associations, ideas, and relationships. (McLuhan,1967), calls these intangible extensions “media”. Inspired by McLuhan, (Sveiby,1997) suggests that people in organisations create structures in order to express themselves. Structures are not objects. Structures should be seen as constructed in a constant process by people interacting with each other, (Weick 1977, 1983). If one looks for a structure one will not find it. What one will find are events linked together. These sequences, their pathways and their timing are the forms we tend to make into objects. Most “things” in organisations are such dynamic relationships, so verbs such as “knowing” and “organising” are better descriptions than the nouns knowledge and organisation.
People can use their competence to create value in two directions: by transferring and converting knowledge externally or internally to the organisation they belong to. When the managers of a manufacturer direct the efforts of their employees internally, they create tangible goods and intangible structures such as better processes and new designs for products. When they direct their attention outwards, they will in addition to delivery of goods and money also create intangible structures, such as customer relationships, brand awareness, reputation and new experiences for the customers.
Three Families of Intangible Resources
The External structure can be seen as a family of intangible relationships with customers and suppliers, which form the basis for the reputation (image) of the firm. Some of these relationships can be converted into legal property such as trademarks and brand names. The value of such intangible resources is primarily influenced by how well the company solves its customers´ problems, which involves an element of uncertainty. Reputations and relationships can be good or bad, and can change over time. They are partly independent of individuals.
When people direct their actions internally they create an Internal Structure. The family of Internal Structure can be seen to hold patents, concepts, models, templates, computer systems and other administrative more or less explicit processes. These are created by the employees and are generally “owned” by the organisation. However, the organisation can legally own only a small part of the Internal Structure. The informal powerplay, the internal networks, the “culture” or the “spirit” can also be regarded as belonging to the internal structure. It is useful to include also the competence of individuals in the Internal structure family, such as support staff, accounting, IT, HR and management in the Internal Structure family, since it is not possible to separate the internal structure from it’s creators. Internal structure is thus partly dependent, partly independent of individuals. Even if the most valuable individuals leave a company that depends heavily on them, such as a consultancy firm, at least part of both the internal and the external structures (the brand name) will probably remain intact and can serve as a platform for a new start, (Sveiby & Lloyd, 1987).
The Individual Competence family consists of the competence of the professional/technical staff, the experts, the R&D people, the factory workers, sales and marketing – in short all those that have a direct contact with customers and whose work are directly influencing the customers view of the organisation.
The distinction between professional/technical staff and support/managerial staff is made because their different roles determine both how they relate to each other and how they relate to the external world. Such classification so it is useful for strategy formulation and action planning. The divide between professional experts and administrative staff commonly found in knowledge-intensive firms (Sveiby 1987, 1992, 1997) is for instance explained by the theory as a lack of knowledge sharing between the two.
Knowledge Transfers/conversions to Create Value
To appreciate why a knowledge-based theory of the firm can be valuable for strategy formulation let us consider some of the features that differentiate knowledge transfers from tangible goods transfers. In contrast to tangible goods, which tend to depreciate in value when they are used, knowledge grows when used and depreciates when not used. Building up competence in a language or a sport requires huge investments in training and managerial competence takes a long time on-the-job to learn. If one stops speaking the language it gradually dissipates. The manufacturing and transportation of physical goods from suppliers, via a factory to a buyer gave us the concept of the Value Chain. If we see the organisation as creating value from transfers and conversions of knowledge together with its customers the Value Chain collapses and the relationship should better be seen as a Value Network (Allee, 2000).
The Firm from a Knowledge-based Perspective
In contrast to the Value Chain the intangible value in a Value Network grows each time a transfer takes place because knowledge does not physically leave the creator as a consequence of a transfer. The knowledge I learn from you adds to my knowledge, but it does not leave you. Thus, from an organisational viewpoint the knowledge has effectively doubled. Knowledge shared is knowledge doubled. From an individual’s point-of-view the perspective however, is different. Here knowledge shared may be an opportunity lost if the effect of the sharing becomes lost career opportunities, extra work and no recognition. Knowledge shared can be competitiveness lost. Fear of dismissal or competition are commonly cited reasons why individuals do not share what they know or what they create. While the above primarily is concerned with transfer of existing (often hidden and/or underutilised knowledge), another issue is the creation of entirely new knowledge. (Nonaka & Takeuchi, 1995), argue that new knowledge is created in the conversion of explicit/tacit knowledge from one type to another.
The choice of the words “transfer” and “conversion” may suggest one-directional movements of knowledge. This is not the intention. Knowledge transfer between two individuals is a bi-directional process, which tends to improve competence of both and teamwork tends to be a co-creation of knowledge involving the whole team. Moreover, transfer of competence depends on conversion from tacit to explicit and back to tacit again in an endless spiral (Nonaka & Takeuchi, 1995). However, it helps strategy formulation and action planning to distinguish directional components of the activities, hence the choice of words.
One feature of a knowledge-based theory of the firm is that it challenges perceptions about the boundaries of an organisation. What is indeed “the organisation” if customers and suppliers are included as families of the firm as in Figure 1? When the importance is placed on how effective the value creation is in the whole system, the issue of whether an individual is a formal employee, a customer, a contractor, a supplier or a customer becomes less of an issue as long as the relationship generates value. An ex-employee can for instance be more valuable as a customer than as an employee, a fact long exploited by the professional services firms.
Enterprises are realising how important it is to "know what they know" and be able to make maximum use of the knowledge. This knowledge resides in many different places such as: databases, knowledge bases, filing cabinets and peoples' heads and are distributed right across the enterprise. All too often one part of an enterprise repeats work of another part simply because it is impossible to keep track of, and make use of, knowledge in other parts. Enterprises need to know:
· What their knowledge assets are.
· How to manage and make use of these assets to get maximum return.
Most traditional company policies and controls focus on the tangible assets of the company and leave unmanaged their important knowledge assets. Success in an increasingly competitive marketplace depends critically on the quality of knowledge which organisations apply to their key business processes. For example the supply chain depends on knowledge of diverse areas including raw materials, planning, manufacturing and distribution. Likewise product development requires knowledge of consumer requirements, new science, new technology, marketing etc.
Definition
Knowledge assets are the knowledge regarding markets, products, technologies and organisations, that a business owns or needs to own and which enable its business processes to generate profits, add value, etc. Knowledge management is not only about managing these knowledge assets but managing the processes that act upon the assets. These processes include: developing knowledge; preserving knowledge; using knowledge, and sharing knowledge. Therefore, Knowledge management involves the identification and analysis of available and required knowledge assets and knowledge asset related processes, and the subsequent planning and control of actions to develop both the assets and the processes so as to fulfil organisational objectives.
Knowledge-based Theory of the Firm
The cognitivist perspective assumes organisations to be open systems, which develop knowledge by formulating increasingly accurate “representations” of the world. The more data and information organisations can gather the closer the representation will be. Hence most cognitivist perspectives equate knowledge with information and data.
According to the connectionist epistemology the organisation still “represents” its outside world, but the process of representation of reality is different. As in cognitivist epistemology information processing is the basic activity of the system. Autopoietic epistemology provides a fundamentally different understanding of the input to a system. Input is regarded as data only. Knowledge is private, a notion which comes close to (Polanyi’s,1958) concept of “personal” knowledge.
Building on (Polanyi,1958) and (Wittgenstein,1995), (Sveiby,1994,1997) defines knowledge as a capacity-to act, (which may or may not be conscious). The emphasis of the definition is on the action element: A capacity-to-act can only be shown in action. Each individual has to re-create his or her own capacity to act and reality through experience – a view which is akin to constructivism (von Glaserfelt,1988).
Knowledge defined as a “capacity-to act” is dynamic, personal and distinctly different from data (discrete, unstructured symbols) and information (a medium for explicit communication). Since the dynamic properties of knowledge are in focus, the notion Individual Competence can be used as a fair synonym.
Strategy Formulation
The word “Strategy” is usually associated with activities and decisions concerning the long-term interaction of an organisation with its environment. While competitive-based and product-based strategy formulation generally makes markets and customers the starting point for the study the resource-based approach tends to place more emphasis on the organisation’s capabilities or core competences.
A knowledge-based strategy formulation should thus start with the primary intangible resource: the competence of people. People are seen as the only true agents in business; all tangible physical products and assets as well as the intangible relations are results of human action, and depend ultimately on people for their continued existence. People are seen to be constantly extending themselves into their world by both tangible means, such as craft, houses, gardens and cars and intangible corporate associations, ideas, and relationships. (McLuhan,1967), calls these intangible extensions “media”. Inspired by McLuhan, (Sveiby,1997) suggests that people in organisations create structures in order to express themselves. Structures are not objects. Structures should be seen as constructed in a constant process by people interacting with each other, (Weick 1977, 1983). If one looks for a structure one will not find it. What one will find are events linked together. These sequences, their pathways and their timing are the forms we tend to make into objects. Most “things” in organisations are such dynamic relationships, so verbs such as “knowing” and “organising” are better descriptions than the nouns knowledge and organisation.
People can use their competence to create value in two directions: by transferring and converting knowledge externally or internally to the organisation they belong to. When the managers of a manufacturer direct the efforts of their employees internally, they create tangible goods and intangible structures such as better processes and new designs for products. When they direct their attention outwards, they will in addition to delivery of goods and money also create intangible structures, such as customer relationships, brand awareness, reputation and new experiences for the customers.
Three Families of Intangible Resources
The External structure can be seen as a family of intangible relationships with customers and suppliers, which form the basis for the reputation (image) of the firm. Some of these relationships can be converted into legal property such as trademarks and brand names. The value of such intangible resources is primarily influenced by how well the company solves its customers´ problems, which involves an element of uncertainty. Reputations and relationships can be good or bad, and can change over time. They are partly independent of individuals.
When people direct their actions internally they create an Internal Structure. The family of Internal Structure can be seen to hold patents, concepts, models, templates, computer systems and other administrative more or less explicit processes. These are created by the employees and are generally “owned” by the organisation. However, the organisation can legally own only a small part of the Internal Structure. The informal powerplay, the internal networks, the “culture” or the “spirit” can also be regarded as belonging to the internal structure. It is useful to include also the competence of individuals in the Internal structure family, such as support staff, accounting, IT, HR and management in the Internal Structure family, since it is not possible to separate the internal structure from it’s creators. Internal structure is thus partly dependent, partly independent of individuals. Even if the most valuable individuals leave a company that depends heavily on them, such as a consultancy firm, at least part of both the internal and the external structures (the brand name) will probably remain intact and can serve as a platform for a new start, (Sveiby & Lloyd, 1987).
The Individual Competence family consists of the competence of the professional/technical staff, the experts, the R&D people, the factory workers, sales and marketing – in short all those that have a direct contact with customers and whose work are directly influencing the customers view of the organisation.
The distinction between professional/technical staff and support/managerial staff is made because their different roles determine both how they relate to each other and how they relate to the external world. Such classification so it is useful for strategy formulation and action planning. The divide between professional experts and administrative staff commonly found in knowledge-intensive firms (Sveiby 1987, 1992, 1997) is for instance explained by the theory as a lack of knowledge sharing between the two.
Knowledge Transfers/conversions to Create Value
To appreciate why a knowledge-based theory of the firm can be valuable for strategy formulation let us consider some of the features that differentiate knowledge transfers from tangible goods transfers. In contrast to tangible goods, which tend to depreciate in value when they are used, knowledge grows when used and depreciates when not used. Building up competence in a language or a sport requires huge investments in training and managerial competence takes a long time on-the-job to learn. If one stops speaking the language it gradually dissipates. The manufacturing and transportation of physical goods from suppliers, via a factory to a buyer gave us the concept of the Value Chain. If we see the organisation as creating value from transfers and conversions of knowledge together with its customers the Value Chain collapses and the relationship should better be seen as a Value Network (Allee, 2000).
The Firm from a Knowledge-based Perspective
In contrast to the Value Chain the intangible value in a Value Network grows each time a transfer takes place because knowledge does not physically leave the creator as a consequence of a transfer. The knowledge I learn from you adds to my knowledge, but it does not leave you. Thus, from an organisational viewpoint the knowledge has effectively doubled. Knowledge shared is knowledge doubled. From an individual’s point-of-view the perspective however, is different. Here knowledge shared may be an opportunity lost if the effect of the sharing becomes lost career opportunities, extra work and no recognition. Knowledge shared can be competitiveness lost. Fear of dismissal or competition are commonly cited reasons why individuals do not share what they know or what they create. While the above primarily is concerned with transfer of existing (often hidden and/or underutilised knowledge), another issue is the creation of entirely new knowledge. (Nonaka & Takeuchi, 1995), argue that new knowledge is created in the conversion of explicit/tacit knowledge from one type to another.
The choice of the words “transfer” and “conversion” may suggest one-directional movements of knowledge. This is not the intention. Knowledge transfer between two individuals is a bi-directional process, which tends to improve competence of both and teamwork tends to be a co-creation of knowledge involving the whole team. Moreover, transfer of competence depends on conversion from tacit to explicit and back to tacit again in an endless spiral (Nonaka & Takeuchi, 1995). However, it helps strategy formulation and action planning to distinguish directional components of the activities, hence the choice of words.
One feature of a knowledge-based theory of the firm is that it challenges perceptions about the boundaries of an organisation. What is indeed “the organisation” if customers and suppliers are included as families of the firm as in Figure 1? When the importance is placed on how effective the value creation is in the whole system, the issue of whether an individual is a formal employee, a customer, a contractor, a supplier or a customer becomes less of an issue as long as the relationship generates value. An ex-employee can for instance be more valuable as a customer than as an employee, a fact long exploited by the professional services firms.
1. High editorial productivity.
This difference in editorial productivity was sustained for 15 years. The knowledge-based strategy initiatives were:
¨ Recruit highly educated staff.
¨ Create Collaborative climate.
¨ Build flat organisation.
¨ Invest in new editorial technology.
¨ Computerise analytical models.
2. Low Staff turnover.
Knowledge Management Roadmaps
Knowledge Asset Road Maps highlight the critical knowledge assets required by an organisation to meet market needs five to ten years in the future. They are mechanisms enabling organisations to visualise their critical knowledge assets, the relationships between these and the skills, competencies and technologies required to meet future market demands. They allow:
Individual knowledge management actions to be defined and justified in terms of their contribution to the overall aims.
Effective communication of the work and progress on the programme to the participants and observers.
Management aids for those involved in carrying out the programme and measuring its progress.
More effective communication between users, researchers, technicians, managers and directors involved in the various aspects of the programme.
Sensible decisions to be taken on the opportunities for further exploiting the results of the programme.
The identification of knowledge gaps that need to be filled.
Diambil Dari: Karl-Erik Sveiby, Article for Journal of Intellectual Capital vol 2, Nr4.2001.
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