A Knowledge-Based Approach

to

Performance Excellence

A Knowledge-based Approach to Performance Excellence

September 2001

ÓDr. Karl-Erik Sveiby

Sveiby Knowledge Associates

Copying not permitted.

Ó Karl-Erik Sveiby, September 2001. All rights reserved.

What is Knowledge-based?

This Paper suggests a “Knowledge-based” approach to Performance Excellence; in the US called the Baldrige Award framework. As basis are the Baldrige award questions as outlined in the Baldrige National Quality Program 2000 Criteria for Performance Excellence, www.nist.gov

A “Knowledge-based” Approach is a ”filter” or a perspective to “see” the organisation. If you try to be “Knowledge-based” you regard the organisation as consisting of Knowledge, People and relationships between people; the organisation’s Intangible Assets. A knowledge-based approach recognises the fact that performance excellence does not exclusively mean financial performance. Under a knowledge-based approach the primary objective of actions is to enhance the value of all assets of the organisation by enhancing knowledge flows, by generating intangible revenues, reducing intangible costs and enabling knowledge creating processes. The financial value created is only one of the outcomes of a knowledge-based approach. The framework is attached in the Appendix.

Examples of knowledge flows are the sharing of knowledge between an expert and a novice, or between two divisions. An intangible revenue can be the flow of ideas or leads from customers and partners, an intangible cost is the loss of knowledge from involuntary staff turnover or the loss of knowledge shared because a low level of low trust in the organisation. The theory of the knowledge-based approach is outlined in “A Knowledge-based Theory of the Firm to guide Strategy Formulation”, published in Intellectual Capital Journal

Summary of the Changes – A Shift in Strategic Balance

A major difference between standard Baldrige award questions and a knowledge-based approach is that the knowledge-based Baldrige questions put higher emphasis on human competence and human relationships as the means to achieve performance excellence.

The other major difference is that a knowledge-based approach puts more emphasis on knowledge flows and environments for knowledge creation for achieving excellence in performance.

A knowledge-based framework for performance excellence requires a fundamental shift in strategic balance. First of all the organisation will add more emphasis on innovation, collaboration and knowledge creation as well as knowledge enabling the processes. The organisation will also have to approach the markets for new talent as strategically as the customer markets and have to develop the same market strategy development process for both customer markets and talent markets, including a process to develop strategic objectives, action plans, and related plans for how to attract and keep talented individuals.

Each one of the 2000 version of the Baldrige award questions has been scrutinised against the perspective to determine to what extent it can be regarded as “knowledge-based”. The proposed changes have been highlighted in blue colour.

The analysis reveals that the existing Baldrige ward questions are 49% knowledge-based. The most knowledge-based categories are 1. Leadership and 3. Customer Focus. The least knowledge-based are 4. Information and Analysis and 7. Business Results.

A knowledge-based approach adds or changes 42 questions. A summary is shown below.

Table of Changes

Category	Original Number of questions	Thereof already Knowledge-based in whole or part	Additions (whole or part questions) in a Knowledge-based Approach
1 Leadership	11	8	2
2. Strategic Planning	10	2	3
3. Customer & Market Focus	13	11	5
4. Information & Analysis	5	1	4
5. Human Resource Focus	18	11	24 (Category changed to Competence Focus)
6.Process Management	21	10	6
7. Business Results	10	0	8
Total	88	43 (= 49%)	42

Category 5. Human resource Focus is replaced by 5. Competence Focus.

New Item 5.1 Talent Market Strategy is added.

Previous 5. Human Resource Focus is demoted to an Item and is renamed 5.2 Competence management.

The Benefit of a Knowledge-based Baldrige Award

The Malcolm Baldrige National Quality Award was an American reaction to the Japanese quality challenge and was signed as law in 1987. The Foundation for the Malcolm Baldrige National Quality Award was established in 1988. In Europe a similar initiative since 1991 is known as the European Quality Award.

Although the guidelines are updated every year the Baldrige award approach and language still reveal their roots in the Industrial Era and the questions are better suited for “Old Economy” companies. A knowledge-based approach will make the process more relevant for Knowledge Era organisations and for the Public Sector.

Brisbane 2001-09-21

Dr. Karl-Erik Sveiby
Questions for achieving Performance Excellence with a Knowledge-based Approach

Blue bold questions are original Baldrige questions, which already are Knowledge-based.

Blue bold underlined questions are new Knowledge-based Questions currently not in the Baldrige framework

Black text is original Baldrige framework text not being changed.

1. Leadership

Senior leaders must address values and performance expectations, as well as focus on customers and other stakeholders, empowerment, innovation, learning, and organisational directions. Also your organisation must address its responsibilities to the public and support its key communities.

1.1 Organisational Leadership

Senior leaders must effectively and systematically guide your organisation and review organisational performance.

a. Senior Leadership Direction

1. How do senior leaders set, communicate, and deploy organisational values, performance expectations, and focus on creating and balancing value for customers and other stakeholders through your leadership structure to all employees?

2. How do senior leaders establish and support employee empowerment and innovation, and organisational and employee learning?

3. How do senior leaders set clear directions and seek future opportunities for your organisation?

b. Organisational Performance Review

1. How do senior leaders systematically review organisational performance and capabilities to assess organisational health, competitive performance, and progress relative to performance goals and changing organisational needs?

2. What are your Key performance measures that are regularly reviewed by senior leaders?

3. How do senior leaders translate organisational performance review findings into priorities for improvement and opportunities for innovation?

4. How are Key recent performance review findings, priorities for improvement, and Opportunities for innovation documented? How are they deployed throughout the organisation and, as appropriate, by suppliers/partners and key customers to ensure organisational alignment?

5. How do senior leaders use organisational performance review findings and employee feedback to improve their leadership effectiveness and the effectiveness of management throughout the organisation?

1.2 Public Responsibility and Citizenship

Your organisation must address its responsibilities to the public and practice good citizenship.

a. Responsibilities to the Public

1. The organisation must systematically examine and address the impacts on society of your products, services, and operations. Key practices, measures, and targets must be identified for meeting or exceeding regulatory and legal requirements and for minimising risks associated with all products, services, and operations.

2. The organisation must have a system in place to anticipate public concerns with current and future products, services, and operations. It must address these concerns in a proactive manner.

3. The organisation must have a system in place to ensure ethical business practices are followed in all stakeholder transactions and interactions.

b. Support of Key Communities

The organisation, its senior leaders, and employees must actively support and strengthen the organisation's key communities. A systematic process must be in place to identify key communities and determine appropriate areas of emphasis for organisational involvement and support, consistent with organisational business objectives.

2. Strategic Planning

Your organisation must have a clear strategy development process, including a process to develop strategic objectives, action plans, and related talent market strategy plans. Also your organisation must deploy the plans and track performance.

2.1 Strategy Development

Your organisation must have a strategy development process to strengthen your organisational performance and competitive position. Your key strategic objectives need to be clearly defined.

a. Strategy Development Process

1. What is your strategic planning process? Including key steps and keys participants in the process.

2. How do you consider the following key factors in your process? Include how relevant data and information are gathered and analysed.

· Customer and market needs/expectations, including new product/service opportunities;

· Competitive environment and capabilities, including use of new technology;

· Financial, societal, and other potential risks;

· Needs/expectations of potential new talent;

· Employee capabilities and needs;

· Operational capabilities and needs, including resource availability; and

· Supplier and/or partner capabilities and needs.

b. Strategic Objectives

What are your key strategic objectives and the timetable for accomplishing them? In setting objectives, how do you evaluate options to assess how well they respond to the factors in 5.1 above that are most important to your performance?

2.2 Strategy Deployment

Your organisation must have a strategy deployment process. Your organisation's action plans and related performance measures must be clearly defined. Project the performance of these key measures into the future.

a. Action Plan Development and Deployment

1. How do you develop action plans to implement key strategic objectives? List key short- and longer-term action plans. Identify key changes, if any, in your products/services and/or your customers/markets and be able to explain the reasons for the changes to employees throughout the organisation?

2. (Prev. human resource requirements) Expanded to 5. Talent Market Strategy Plan and Competence Focus).

3. How do you develop a system to allocate resources throughout the organisation to ensure they are aligned with strategic objectives, and that your overall action plan is achieved?

4. How do you define key performance measures and/or indicators for tracking progress relative to action plans?

5. How do you communicate and deploy strategic objectives, action plans, and performance measures/indicators throughout the organisation to achieve overall organisational alignment of work and resources?

b. Performance Projection

1. Define the two- to five-year projections for key performance measures and/or indicators. Include key performance targets and/or goals, as appropriate.

2. Determine the projected performance of competitors and key benchmarks, as appropriate, for the same time period as your projected goals. The basis for these comparisons must be clear.

3. Customers & Markets

Your organisation must determine requirements, expectations, and preferences of customers and markets. Also your organisation must build relationships with customers and determine their satisfaction.

3.1 Customer and Market Knowledge

Your organisation must determine short- and longer-term requirements, expectations, and preferences of customers and markets to ensure the relevance of current products/services and to develop new opportunities.

a. Customer and Market Knowledge

1. How do you determine target customers, customer groups, and/or market segments? How do you consider the requirements of customers of competitors and other potential customers and/or markets in this determination?

2. How do you listen and learn from current, former, and potential customers to determine key requirements and drivers of purchase decisions? If determination methods differ for different customers and/or customer groups, define the key differences and show how your techniques for learning about the requirements of these groups vary according to real differences among the customer groups?

3. How do you determine and/or project key product/service features and identify their relative importance/value to customers for purposes of current and future marketing, product planning, and other business developments, as appropriate. How do you use relevant information from current and former customers, including marketing/sales information, customer retention, won/lost analysis, and complaints, in this determination?

4. How do you evaluate and improve your listening and learning methods to keep them current with changing business needs and directions?

5. How do you determine which customers provide the most valuable knowledge to your employees?

3.2 Customer Satisfaction and Relationships

Your organisation must determine the satisfaction of customers and build relationships to retain current business and to develop new opportunities.

a. Customer Relationships

1. How do you determine key access mechanisms to facilitate the ability of customers to conduct business, seek assistance and information, and complain? Document the key mechanisms used.

2. How do you determine key customer contact requirements and systematically ensure all employees involved in the customer response chain understand and adhere to these contact requirements?

3. What is your complaint management process to ensure that complaints are resolved effectively and promptly (ideally at the first point of contact)? How do you ensure that all complaints received are aggregated and analysed for use in overall organisational improvement?

4. How do you systematically build relationships with customers to ensure repeat business and/or positive referral?

5. How do you evaluate and improve approaches to provide customer access and build relationships to keep them current with changing business needs and directions?

6. Who are our Key Customers? What intangible revenues do they bring?

7. How do you select and improve relationships with those customers that provide the highest intangible value to your organisation?

b. Customer Satisfaction Determination

1. What processes, measurements, and data do you use to determine customer satisfaction and dissatisfaction? How do you ensure that measurements capture actionable information that reflects customers' future business and/or potential for positive referral? Define any significant differences in processes or methods for different customer groups and/or market segments.

2. How do you systematically follow up with customers on products/services and recent transactions so your organisation can receive prompt and actionable feedback for use in improving products and services and preventing future problems?

3. How do you obtain and use information on customer satisfaction relative to competitors and/or benchmarks, as appropriate, to improve your offerings and support strategic planning?

4. How do you evaluate and improve approaches to customer satisfaction determination to keep them current with changing business needs and directions?

3. 3 Knowledge transfer to Customers

1. How do you determine what and how much knowledge your customers need from you?

2. How do you ensure that your customers have all the knowledge they require to serve their customers to a high degree of satisfaction?

4. Information and Analysis

Your organisation must have a performance measurement system and a way to analyse performance data and information.

4.1 Measurement of Organisational Performance

Your organisation must provide effective performance measurement systems for understanding, aligning, and improving performance at all levels and in all parts of your organisation.

a. Measurement of Organisational Performance

How do you address the major components of the organisation's performance measurement system, including the following key factors?

• Select measures/indicators that examine the extent and effectiveness of daily operations;
• Select and integrate measures/indicators to ensure complete data are available to track overall organisational performance in areas key to business success;
• Select measures/indicators that track intangibles and knowledge flows.
• Select key comparative data and information and effectively use the Data to set goals and improve work processes throughout the organisation;
• Ensure the reliability of data and information used for decision making;
• Use information and data to improve the cost/financial understanding to help set priorities regarding improvement options;
• Use data and information to develop correlations/projections to support planning; and,
• Evaluate and improve the performance measurement system to keep it current with changing business needs and directions.

4.2 Analysis of Organisational Performance

Your organisation must analyse performance data and information to assess and understand overall organisational performance.

a. Analysis of Organisational Performance

1. How do you perform analyses that examine the overall health of the organisation, including key business results and strategic objectives, to support senior executives' organisational performance review and planning?

2. How do you ensure that the results of organisational-level analysis are linked to work group and/or functional-level operations to enable effective support for decision making?

3. How does analysis support daily operational decision making throughout the organisation, and ensures that measures align with action plans?

4. How do you perform analyses that examine how knowledge flows, intangible revenues and intangible costs affect the overall business results?

5 Competence Focus