The New Organsational
Wealth
Foreword
to New Korean Edition 2005
Much has happened since the first print of The New Organisational Wealth
in Korean language; Knowledge Management has come of Age. A new profession and
a new research discipline have emerged: ‘knowledge managers’. Both
practitioners and scholars have found that they have to answer an unexpected
question: If Knowledge Management is
the Answer, What is the Question? What is it the KM can help
business with?
Some recent quotes from participants in one of my workshops highlight
the issue:
"50% of our workers are retiring in the next five years and we must
come up with methods to capture their knowledge before they leave."
"We had three business units developing more or less identical
computer systems for handling components, each costing $500,000. They didn't
know if each other. We must reduce the waste".
"I manage three hospitals, there is no learning between the
hospitals the doctors refuse to transfer best practice".
"We need to measure our intangibles.
We have implemented a Balanced Scorecard but it didn´t work.”
The common thread among nineteen of the twenty managers in the room was
the traditional middle management concern to increase efficiency, reduce waste,
in short: to better utilise existing knowledge or measure performance.
Only one of the twenty in the room said:
"I came here to learn how to make my department more innovative."
Her concern was how to create new knowledge.
The managers displayed one of the two KM dynamics: Is KM primarily a
range of cost reduction activities or can KM increase revenues?
The heavy emphasis on efficiency in the answers is quite typical. The
majority of the managers don’t see themselves in charge of revenue
creating activities (that is believed to be the sole responsibility of sales
and marketing!).
Surveys of chief executives generally report that some 60-70% of the KM
initiatives were related to best-practice sharing, efficiency and information
transfer. Less than 10% respond that their KM efforts had to do with
innovation. When the business problem is defined in cost reduction
terms, the solution is more often than not a new IT system, to re-engineer the
information processes and to buy a database. This is a simple solution that all
can understand.
Most knowledge managers now know that KM solutions are much more than
IT-investments, but their ‘clients’, the middle managers do not
know it. Unfortunately, ‘knowledge management’ is a
poor term, which leads the thoughts of managers in precisely that direction;
towards treating knowledge as an object, which can be ‘managed’ by
computer systems.
The trouble for us in the KM field is to convince them that the other
purpose: to create new knowledge and to increase revenues is much more complex
to handle, but infinitely more rewarding. After all: you can only save 100% of
the costs, but sky is the limit when it comes to increase revenues.
Don’t Talk Theory!
The other issue KM practitioners have had to struggle with is the
eternal question of what Knowledge is. They have patiently listened to an
endless series of speakers trying to define the concept, usually only
complicating matters further. Some KM managers have made the mistake to bring
up this theory discussion with their managers, whose eyes immediately glaze
over.
My advice to KM managers is simple: Don’t talk theory; it will
not change anything! Whatever you say will be placed in the “too
hard-basket” so the existing implicit paradigm that knowledge is some
kind of advanced Information will prevail.
However, if you are a professional in the field the
definition is too important to be dismissed; What is
the point in having people with lots of knowledge, but who are unable to do
anything with it? What is the point in filling computers with information if
the value is in the people? Read Chapter 3 to get the answer about Knowledge,
but do not try and sell it!
A KM manager that believes that knowledge is more or less the same as
information will also believe that an investment in Information Technology is
to “implement Knowledge Management”. It is the easiest way out.
Unfortunately it is also the easiest way to lose money. The
misconception among knowledge managers to deal with this issue has caused
wastage in the order of billions of dollars world-wide.
A KM manager, on the other hand, that is convinced that Knowledge is a
Process (i.e. a human faculty) and that the key to success in Knowledge
Management lies in People will find a dilemma. Where to start?
If we accept that Knowledge is a human faculty, the purpose for
Knowledge Management concerns how the organization best can nurture, leverage
and motivate people to improve and share their Capacity to Act. KM
becomes a strategic issue for the whole organization. I call it a Knowledge-based
Strategy and it still remains the core of my understanding also
almost ten years after the first edition of this book.
KM – a “Movement” with Three Origins
It is important to understand that KM has not evolved out of a set of
formal methodologies. It is often the case that similar concepts and research
emerge independently in different parts of the world and KM is no exception. In
the mid 1980´s researchers and practitioners all over the world started to be
interested in the role of knowledge in businesses. As a concept KM has at least
three origins and this makes the field confusing for people trying to grasp it
for the first time.
In the
The problem with AI was that most of the AI systems fell into disuse
after 6 months to a year so a group in A.D Little
started to look at the role that knowledge plays in conducting business -- be
it design engineering, weather forecasting, running a refinery process, and so
on. Karl Wiig, the head of the AI group at that time, says:
“We started to think in terms of creation, learning, sharing
(transferring), and using or leveraging knowledge as a set of social and
dynamic processes that needed to be managed (sure, technology came into it at
times but was not at the center, we discovered later). And we could not
come up with a better term than ´Knowledge Management.´ -- Now, I regret that
we could not find a better descriptor!”
Karl Wiig used the term Knowledge Management in a presentation in
1986 for the first time and went on to publish several books on his team’s
experiences. Debra Amidon published at
In
In
I also developed a theory on how to measure intangible assets, testing
the theories with a group of executives, the ´Konrad group´. The results of the
work was, published in 1989 in the book The Invisible Balance Sheet,
which proposed a theory and a score card approach for measuring ´Knowledge
Capital´ by dividing it into three categories: ´Customer Capital,-
Individual Capital, and Structural Capital´; the Intangible Assets Monitor. By
1991 some 40 Swedish companies had been inspired to publish their Knowledge
Capital, the best known example being Skandia Insurance, which re-labeled the
concept Intellectual Capital in their first annual report supplement on
´Intellectual Capital´ in 1994.
We can thus see that KM has an American Information/AI-origin, a
Japanese Knowledge Creation/Innovation origin and a Swedish Strategy/Measuring
origin. There is also a close link between the Swedish concepts of KM and the
Swedish roots of Intellectual Capital. Depending on the speaker/writer one will
therefore see completely different perspectives and paradigms. The American
IT-influenced perspective on KM tends to be contrasted against the Japanese and
Swedish more people-focused KM perspectives.
Some lament this lack of cohesion and absence of a formal
all-encompassing theoretical framework. I believe it is a
strength! The concept of Knowledge Management is unusual in its
ambiguity, extraordinary in its depth, unfathomable in its rapid expansion and
– best of all – it has no single Ôãâ
owner. From a few seeds planted by a few of us twenty years ago, the framework
and the practices are now growing exponentially through the efforts of hundreds
of thousands of practitioners and thinkers worldwide who practice what they
teach in a very broad range of pioneering experiments. The sharing of knowledge
about KM is unprecedented in history. KM is a LINUX of management concepts. A
“Movement” of people round the globe connected and contactable via
the Net.
Lessons from the Pioneers
I have come
across too many failed knowledge managers, who desperately have tried to
convince their managers about the benefits of knowledge management. My advice
again: Don’t sell KM! Instead use the skills and the tools of KM to
address the most urgent business needs of your organisation. The Pioneers did
not try ‘sell’ the concept Knowledge
Management; they succeeded because they addressed business issues. Here are
some lessons learned from them.
1. Enthusiastic Champions…
Companies who are now regarded as “pioneers”, (i.e. they
started early and with little or no consulting support) have had the fortuitous
presence of one or more enthusiastic individuals who have combined conceptually
innovation and change agent behaviours. They have defined pushed, cajoled, and
manipulated their organisation into a KM approach.
Their primary means of achieving these business results have been to
make KM work as a valuable approach in one part of the business or in the whole
organisation. Champions are natural leaders with vision, and a missionary
belief in the value of KM to bring their organisation into the future.
2. …build on Existing Core Competence.
The successful pioneers built their KM initiatives around existing core
competencies. For Shell, which pioneered the idea that strategic planning was
not a business management process but a corporate learning process, the Shell
Learning Centre was the natural KM base. In Dow Chemical´s portfolio of 29,000
patents was a key strategic asset that was underutilised. For Chevron the
capability of knowing where when and how to drill for is a core competence and
so found it natural to build KM on their pioneering Best Practice management.
In our publishing firm Affärsvärlden the initiative came from the editorial
department. At McKinsey and the other professional services firms KM addresses
the bottleneck issue of how to make the knowledge of the valuable experts more
effectively and efficiently utilised.
3. They Address an Urgent Strategic Imperative…
The merged PricewaterhouseCoopers knew they had a goldmine of expertise
but they did not know where and how to find it. They did know they had some
120,000 overlapping databases (about the same number as the number of
employees!). PwC’s KM initiative therefore focused heavily on an IT architecture. Nokia, the Finnish company that
dominates the mobile phone industry, applies KM principles in order to reduce
time-to-market. The KM pioneers in Siemens, one of the world´s largest
conglomerates, offer a way to create value from diversity.
Skandia’s US subsidiary wanted a method to “clone”
it’s wildly successful financial services formula in new markets.
Buckman Labs, a small ~1,200 employees
chemicals firm was desperate for a way to let their widely dispersed agents and
experts share ideas and information. An IT system KNETIX was design to
facilitate communications between sister companies, so that the collective
knowledge and understanding of the entire organization could be brought to bear
on any problem. The resulting acceleration of knowledge transfer would lead to
a strategic advantage based on the leverage of internal (as opposed to
external) knowledge.
4. …with Firm Commitment from the Top…
Champions without powerful sponsors at the top become lonely guerilla
warriors prone for defeat. In Buckman Labs, Affärsvärlden and PwC the sponsors
were the owners and KM was elevated to a strategic issue. In Shell the powerful
Learning Centre was the sponsor, in Skandia no one
questioned the decisions of the juggernaut
5. Early Quick Wins Neutralise the Nay-sayers
Gordon Petrash at Dow Chemical often referred to the “low-hanging
fruit” when he described how he and his tam won the first battles to
change existing routines. While the group was originally set up to reduce the
costs of patent management, it knew that Dow possessed an array of other
intellectual assets and reasoned that patents was an area in which they could
demonstrate obvious value, and could implement its new processes quickly.
Petrash estimates that the firm increased its annual licensing income from $25
million in 1994 to more than $125 million three years later.
A
Knowledge Perspective uncovers Hidden Value!
The KM
Pioneers have found that most of the low-hanging fruits tend to be found by
sharing practices and increasing efficiencies, so cost reduction is natural
staring point for a KM initiative.
However, as
Dow Chemical shows, more long-term effects and higher value comes from a
different way of viewing existing practices – by viewing one’s
business from a knowledge-perspective one can uncover hidden value and increase
revenues.
An example
is the call centre of the South African mobile phone company MTN, originally
set up with low paid staff of low status to deal with customer complaints. They
applied a knowledge perspective and taught the call operators to elicit ideas
for service improvements from the customers. In only two weeks this gave them
more than ten new products and services that they implemented. They also began
relaying real-time information from the call centre about connection problems
to the network monitoring unit, which previously had relied on technical data
only, and found that this information was a very valuable complement. The call
centre was able to generate additional intangible revenues from the
customers; it is now regarded as the MTN’s ‘sensitive skin’
and its status has soared.
A knowledge
perspective often reveals hidden intangible revenues. A recent example is the
Norwegian private hospital Lovisenberg. The nursing staff wanted to find a way
to reduce the anxiety of patients going into surgery, so the hospital decided
to do an experiment: They invited ex-patients to meet the new patients. They
found that their anxiety was indeed reduced so it was regarded a success and
this would normally have been enough. However, the knowledge manager applied a
knowledge perspective and could reveal hidden revenues. She asked how
they had noticed the lower anxiety. Both doctors and nurses answered that the
patients asked fewer questions (=time saving) and the nurses added that they
did not have to administer as many relaxation drugs as before (=cost saving).
The hospital had gained additional revenues by tapping into the unique
knowledge of the ex-patients.
The choice
of customers hence becomes of strategic significance. Customer interfaces can
literally be regarded as knowledge gateways. Generally, we can
distinguish between three types of intangible revenues; those that:
- improve external relations – i.e. the relationship with the external environment
including all stakeholders such as suppliers, society in general, the
natural environment, etc.;
- improve internal structure – i.e. all the
systems, flows, cultures and spaces that make up the organisation
internally. It is a broadening of the bandwidth through improved
collaboration;
- improve the competence of employees –
i.e. individual learning from customers and other stakeholders.
Lastly, I
would like to thank Dr. Kwon Sang Sool and the staff of Mirae, in particular
Dr. Kim Yong-Koo, for their efforts and skills in bringing this new edition
into print. Their belief in the value of the knowledge perspective and their
unending support has been an inspiration for me and made this second amended
edition possible.
Karl-Erik
Sveiby
Professor in
Knowledge Management,