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Knowledge creation has been widely recog-nised to be strategically important for organi-sational learning and innovation. Nonaka and
Takeuchi’s book The Knowledge Creating Companycrystallised the intricacy of knowledge creation andits importance in the organisation’s long-term suc-cess and survival. However, the lack of empiricalwork in this area has limited our understanding ofthis important phenomenon. Previous studies havefocused on limited aspects of the overall knowledgecreation process, such as inter-organisationalknowledge transfer, knowledge flows within thefirms and the interplay of tacit and explicit knowl-edge. As a result, our understanding of knowledgecreation is limited to certain micro-level aspects,rather than understanding the process in its entirety.Our study is a comprehensive analysis of the knowl-edge creation chain, incorporating both environ-mental and organisational factors that play a role inthe overall process.
The hallmark of our research is that we presentand test a comprehensive beginning-to-end model ofknowledge creation. Specifically, our model examinesfive important dimensions of the knowledge creationand application process: • acquisition of information and knowledge from
networks of interaction;• integration of external and internal knowledge;
• creation of new knowledge from the application ofinformation and knowledge to problem solving;
• impact of new knowledge on firm innovation andperformance; and
• role of specific individual and organisation factorsplay in the overall process.
Our results reveal what is important for effectiveknowledge creation in organisations. Specifically, weshow that:• formal networking is not as important as informal
networking as a source of information acquisitionfor organisations;
• know-how is not acquired directly but synthesisedfrom the acquisition of information;
• know-how synthesis is strongly determined by theability of the individual employee to absorb newknowledge and the incentives and systems of thefirm that encourage knowledge acquisition;
• this know-how contributes to the performance ofthe firm through the level of creativity in problemsolving which, in combination with comprehen-siveness and consensus, is the key contributingfactor to the level of new knowledge created bythe firm; and
• new knowledge impacts directly on firm innovativeoutput, which, in turn, is a positive influence onfinancial performance.
JULY
/AU
G20
01Vo
l 1 Is
sue
2
Asia needs to catch up to compete .................................2New handbook hopes to handle KM confusion .............3Launch of the Hong Kong Knowledge Management
Society (HKKMS) ...................................................3Managing the Knowledge Asset Manager .....................8
Home is where the heart is:interview with one of KM’s "founding fathers," Dr. Karl-Erik Svelby ...11
"Co-opetition" is helping out the little penguin ...........13Performance Management: Know where your
business is going ....................................................14
Also in this issue . . .
w w w . p b p r e s s . c o m
Asia-Pacific
KnowledgeManagementCAPITALISE ON YOUR INTELLECTUAL ASSETS
Franklin Shiu – [email protected]
Angel Ho – Editorial [email protected]
Colm Cronin – Managing [email protected]
Tim Gilkison – Production [email protected]
Michelle Chan – Marketing Manager [email protected]
Ming Li – Events Manager [email protected]
Craig Lan – Sub’s Sales Manager [email protected]
Arun Mistry – [email protected]
Editorial EnquiriesTel: . . . . . . . . .(852) 2542 4279Fax: . . . . . . . . .(852) 2575 [email protected]
Advertising & SubscriptionsTel: . . . . . . . . .(852) 2542 1113Fax: . . . . . . . . .(852) 2575 [email protected]
Knowledge Management Asia-PacificPublished 10 times annually by Pacific Business Press Ltd17B Hilltop Plaza, 49, Hollywood RoadCentral, Hong Kong
Also publishers ofAsian Financial Law Br iefingIn-House Br iefing Asia-Pacifice-law asia
© 2001 Pacific Business Press Ltd. and contributors
Opinions expressed herein do not constitutelegal advice, and do not necessarily reflect theviews of the publishers.
ISSN 1609-3712
Show me the moneyResearchers from the Centre for Corporate Change at theAustralian Graduate School of Management have found thateffective knowledge management is directly linked to betterfinancial performance
(continued on page 4)
KMAP2
KMAP NEWS
The winners of the Fourth AnnualMost Admired Knowledge
Enterprises (MAKE) study, recognis-ing world-class efforts in managingknowledge that leads to superiorperformance, ranked in order, are:
1. General Electric2. Hewlett-Packard3. Buckman Laboratories4. World Bank5. Microsoft6. BP7. Siemens8. Skandia9. McKinsey & Company10. Cisco Systems11. Andersen12. Ernst & Young13. KPMG14. Xerox 15. International Business Machines16. Accenture17. Clarica Life Insurance18. Royal Dutch/Shell19. Sony20. Schlumberger
The survey leading to the MAKEawards is conducted by Teleos inassociation with The KNOW Network,a Web-based network of leadingknowledge organisations dedicated tothe identification and exchange ofbest practice knowledge processes.
To select the Most AdmiredKnowledge Enterprises, senior execu-tives at Fortune Global 500 companiesand chief knowledge officers wereasked to nominate companies and rankthem against eight key drivers of out-standing performance. A total of 102organisations received at least onenomination in the 2001 MAKE study. Ofthis total, 37 enterprises received nom-inations from at least 10% of therespondents and were selected asMAKE finalists. The top 20 finalists are2001 MAKE Award Winners.
General Electric gained top UKhonours in this year's internationalMAKE study. GE was recognised for
its leadership role in five knowledgeperformance dimensions, includingtop rankings in the "Success inEstablishing an Enterprise KnowledgeCulture" and "Success in Establishinga Culture of Continuous Learning" categories.
Rory Chase, Managing Director ofTeleos, states: "Organisations arebecoming increasingly aware thatmanaging knowledge is the key differ-entiator when competing in today'sglobal markets. The 2001 MAKEAward Winners arerecognised as leaders inthe race to deliver cus-tomer-focused, knowl-edge-based goods andservices."
Keen readers ofKMAP will note that asimilar study conductedin Japan recently putFuji Xerox at the top ofthe Japanese KM hill. Sowhy did anotherJapanese company, Sony, make thetop 20 and not Fuji Xerox in the inter-national study?
"Fuji Xerox was a 2001 MAKE final-ist, but its composite score wasslightly lower than Sony’s. Only thetop 20 MAKE finalists received 2001MAKE Awards – Fuji Xerox just missedout," explains Chase.
"The 2000 MAKE Japan study wasconducted by Japanese senior execu-tives and KM practitioners whereasthe 2001 international MAKE studywas conducted by Global Fortune 500senior executives and internationalKM practitioners. Also, in the interna-tional MAKE study, companies mustbe seen to be global KM companies,not regional ones – most of FujiXerox's activities are based in theAsia-Pacific region," Chase adds.
As to why there was only one Asiancompany present in the top 20, Mr.Chase responds: "At present there is asignificant gap in the understandingand maturity of KM between Asian
companies and those in the US andEurope. This is mainly due to the factthat American and European compa-nies have had KM strategies and initia-tives in place for almost 10 years, whileAsian companies have only two orthree years of experience."
"American and European compa-nies have gone through the KM learn-ing curve and are now transferringbest knowledge practices acrossorganisations. Asian companies arestill attempting to understand the con-
cept of KM, and most oftheir initiatives have notbeen going long enoughto show the return oninvestment."
However, Chase doesbelieve that Asian KM isemerging, and hasobserved this in severalJapanese firms, butwarns: "Like Americancompanies in the early1990s, these Japanese
companies have been working on IT-based KM projects. They are justbeginning to realise that KM is morethan IT - it is actually about transform-ing organisational cultures to empha-sise the value of intellectual capital andthe knowledge in people's heads."
"It is my opinion that Asian com-panies will begin to close the 'KMgap' with American and Europeancompanies over the next couple ofyears. I have been most impressed bythe dedication and learning culture inmost Asian companies, and I thinkthat Asian companies are now in aposition to avoid many of the mis-takes made early on by Western com-panies. In doing so, I believe that theywill move quickly up the KM curve - itis quite possible that Asian compa-nies will be able to catch up withWestern companies within the nextfive years." KM
For more information on the MAKE awards,
visit www.knowledgebusiness.com
Asian companies still lag behind in KM
“At present thereis a significant
gap in theunderstanding and
maturity of KMbetween Asiancompanies andthose in the US
and Europe”
JULY 2001 3
Standards Australia Internationalhas released a 68-page handbook
entitled Knowledge Management –A Framework for Succeeding in theKnowledge Era (The Framework). Itoutlines the elements of knowledgemanagement and how to applythem in an organisation. The hand-book is also designed to reduce con-fusion about KM, instill confidencein the value of the field and to assistorganisations in its implementation
John Rimmer, CEO of Australia’sNational Office of the InformationEconomy (NOIE), officially launchedthe handbook. He said: "Effectiveknowledge management is of increas-
ing importance for both the Australianand the global economy. There is afundamental shift occurring in theworld economy, with an increasingimportance of knowledge intensiveservices sectors.
Rimmer claimed that the applica-tion of the concepts and principlesbehind the new handbook can assistcompanies in facing the challenge ofthe information economy. "TheFramework provides a roadmap fororganisations to follow, which willassist them in succeeding in the infor-mation economy. I commendStandards Australia on TheFramework. We are intending to make
use of it in NOIE and look forward toseeing its application throughoutAustralian organisations."
Standards Australia’s projectmanager responsible for developingthe framework, Tim Kannegieter,said: "With hundreds of organisa-tions around the world putting for-ward knowledge managementstrategies, it is easy for the noviceKM practitioner to become confused.Which approach to knowledge man-agement should they choose andhow can they have confidence theyare heading in the right direction?"He claimed that these issues wereaddressed by The Framework. KM
New handbook hopes to handle KM confusion
"Knowledge is where themoney is," said Les Hales,
director of Gartner Group, suc-cinctly describing the importanceof knowledge management in themodern economy.
On June 7, Hales and Regina YuetFai Yu, Director of KnowledgeManagement at Pricewaterhouse-Coopers, officially launched the non-profit Hong KongKnowledge ManagementSociety (HKKMS) withWaltraut Ritter.
"The service sectoralready makes up ahigher proportion of HongKong’s GDP than anyother economy in Asiaand a significant segmentof its population areknowledge workers employed ininformation-intensive businesses.KM adds to this by strengtheningcompanies’ ability to innovate,respond and compete through shar-ing and levering people’s knowledgeand expertise," said Ritter.
"As the focal point for peopleinterested in the practise of KM as abusiness discipline, the HKKMS has auseful role to play in the further devel-
opment of Hong Kong as a knowledgeeconomy."
Ritter also noted the difficulties fac-ing KM in Hong Kong, including the"father knows best," "quick results" and"revenue driven" mentalities that dom-inate the local business landscape.Comparatively, "KM is a journey, andinvolves a fundamental, long-term cul-tural shift," she said "it cannot be neatly
pigeon-holed into a certaindepartment, nor can tangi-ble financial results beimmediately apparent,"noted Hales who, alongwith Yu, will act as HKKMSvice-presidents.
As a result, the HKKMShas set itself a number of goals and objectivessuch as:
• increasing awareness of KM’simportance among Hong Kongcompanies and organisations;
• raising KM standards in HongKong by recognising and docu-menting successful practice;
• expanding the pool of KM expert-ise available in Hong Kong;
• tracking developments in the KMfield and communicating them tomembers;
• serving as a repository of informa-tion about KM; and
• voicing the collective views of theKM profession on pertinent publicissues.
"Intellectual capital is the most impor-tant means of production in the 21stCentury," commented Hales."Enterprises should develop formalprocesses or enabling technologiesaround this key resource."
According to Ritter, the HKKMSplans to hold regular meetings to dis-cuss KM issues and organise confer-ences open to Hong Kong’scommunity at large. The HKKMS willactively build links and shareresources with KM-related organisa-tions in both Hong Kong and over-seas, says Ritter.
Membership of the HKKMS isopen to both individuals and compa-nies. An individual membership tothe HKKMS with be HK$1,200.Individual corporate and corporatememberships will be HK$2,000 andHK$5,000 respectively, according tothe society. The HKKMS states thatits founders comprise more than 120individuals and corporate members,including Cathay Pacific, KPMG andXerox. KM
Launch of the Hong Kong Knowledge Management Society
“KM[strengthens]companies’ability toinnovate,
respond andcompete...”
KMAP4
KMAP FEATURE
Our research is relevant to managers inter-ested in leveraging the knowledge of theirorganisations to improve innovative outputand financial performance. Not only does itprovide solid information against which tobenchmark a firm’s performance, it alsoguides managers toward the key factors thataffect the process of knowledge creation andinnovation. Our findings suggest that man-agers must pay careful attention to: • cultivating opportunities for inter-firm
and intra-firm informal networking;• encouraging absorptive capacity amongst
employees (and providing supportingpolicies and procedures); and
• sustaining high levels of creativity inorganisational problem solving as ameans of generating new knowledge. Asone of the first studies to examine theknowledge creation process empirically,we have lifted the lid off the black-box ofknowledge management.
A model of knowledgecreation in organisations
Knowledge is being acknowledged as astrategic asset and a source of competitiveadvantage. As goods and services becomemore sophisticated in content and production,the foundation of competition becomes inten-sively knowledge based, with the focus ondeveloping valuable and hard-to-imitateknowledge that yields sustainable competi-
tive advantage. With the development ofinformation technologies, the networkedform of organisation and the need for innova-tion, the main concern is on the generation,management and utilisation of knowledge insuch a way that produces long-term advan-tages. Despite its importance, knowledgemanagement in organisations has remained ablack-box for both scholarsand practitioners.
The focus of our work isthe process of creating newknowledge in organisations,an area that has received littleattention in empiricalresearch. Although scholarshave written about knowl-edge, as a subject, from theperspective of a wide range ofdisciplines, there has yet to beany theory of knowledgedeveloped. In their book TheK n o w l e d g e - C r e a t i n gCompany, Nonaka and Takeuchi argued that"even though many of the new managementtheories since the mid-1980s have pointed tothe importance of knowledge to society andorganisations in the coming era, there are veryfew studies on how knowledge is createdwithin and between business organisations."
In formulating and executing the currentresearch, our objective was to present a com-prehensive theoretical and empirical investi-gation of organisational knowledge creationand its impact on firm performance. Thebasic model is presented in Figure 1.
In the most simplistic terms, the modellooks at innovative and financial perform-ance as the outcomes associated with thelearning and knowledge that flows from deci-sion-making processes, which themselves areaided by information and know-how that isabsorbed by the firm and its employeesthrough its internal and external networks.
All of this occurs with aninformational and industryenvironment.
Who was studied?A questionnaire survey wasdeveloped to test the valid-ity of the model presented inFigure 1. The survey wassent to 2,137 organisations(addressed to the CEO ormanaging director) in 17industries. The industriesincluded in the study arelisted in Figure 2. Attention
was given to ensuring that we targetedindustries where issues of information andknowledge transfer, knowledge creation andinnovation were important and relevant.Specifically, the study targeted industriesfacing dynamic and competitive environ-ments and, hence, the need for continuousknowledge creation and learning. 345 exec-utives responded to the questionnaire survey(yielding a 16% response rate). After elimi-nating 28 surveys due to large proportionsof missing data, the final number of obser-vations used in the analysis totaled 317. The
distribution of responses by indus-try and the response rate withineach industry are given in Figure 2.The responses were fairly evenlydistributed across manufacturing(44%) and service (56%) indus-tries, as well as across the 17industry sub-groups included in thesurvey. Figure 2 also indicates thateach of the 17 industries includedin the sample population is repre-sented in the final set of responses,with response rates ranging from5% to 16%.
The bottom lineThe statistical analysis providesstrong confirmation for the modelpresented in Figure 1. The generalfindings are that information is
Our research isrelevant tomanagers
interested inleveraging the
knowledge of theirorganisations
to improveinnovative output
and financialperformance
Show me the money(continued from page 1)
Figure 1: Impact of knowledge on firm performance model
JULY 2001 5
sourced from internal and external net-works and converted into know-how that isacted upon by decision makers in their dailyactivities. This leads to new knowledgewhich increases innovative output and,hence, performance.
The specific managerial insights emerg-ing from the results are as follows.
Both formal and informal networks areimportant sources of information. The 20%of firms with the broadest and deepest formalnetworks were 40% higher in informationacquisition than the bottom 20% of firms.However, the 20% of firms with the broadestand deepest informal networks were 50%higher in information acquisition than thebottom 20% of firms.
This latter point and more sophisticatedanalysis indicate that the informal network issomewhat more critical to information andknow-how acquisition than the formal net-work. This supports the theories of manysocial network scholars that the informal net-work represents a rich pool of resources intowhich individuals and organisations can tap.It also implies that firms attempting to utiliseformal systems as their primary means ofmanaging knowledge are likely to fail.
Know-how is not acquired directly fromthe network, but indirectly via informationacquisition. This leads to two interestingpotential conclusions. First, firms do notacquire knowledge externally. They acquireinformation. Second, formal systems that
focus on knowledge acquisition are doomedto fail since they are attempting to acquirethe unachievable. Hence, firms may be betteroff setting their sights lowerwhen they talk about knowl-edge acquisition; i.e. theyshould stick to distinguish-ing between formal informa-tion systems and informalknow-how systems.
The propensity for infor-mation and know-how acqui-sition is augmented by bothindividual and organisationalabsorptive capacity. That is,the more individuals engage in informationseeking, storing and sharing, and investmentsin knowledge development, the more likelythey are to absorb information and know-how from their network of interactions. Thetop 20% of individuals acquire approxi-mately 20% to 30% more information andknow-how and convert this into new knowl-edge. Similarly, firms with the better incen-tives for absorbing information andknow-how show consistently larger amountsof information, know-how and new knowl-edge acquired and created.
Knowledge acquired through networkinteraction influences the effectiveness of theorganisation’s internal processes.Specifically, the level of know-how acquisi-tion directly affects the level of creativity inproblem solving. More formal analysis
shows that knowledge impacts cre-ativity in problem solving, which isa quality measure, and not compre-hensiveness, which is a quantitymeasure.
Effective problem solvingprocesses (i.e. where creative solu-tions are devised and organisationalmembers are committed towardstheir implementation) contributesto new knowledge creation, interms of improved productivity,new ways of doing things, newideas, new ways of thinking, andimproved problem-solving ability.The creation of new knowledge inturn generates higher levels of inno-vative output, which is then mani-fested in financial performance.Greater comprehensiveness andcreativity in decision-making leadsto greater generation of new knowl-
edge. Firms using more consensus-drivendecision-making are slightly better thanthose having more autocratic structures, but
the results here are not asclear or consistent.
The more new knowl-edge created, the greater isthe organisation’s innova-tive, financial and marketperformance. Firms creatingthe most new knowledge are40% higher in innovationthan those creating the leastnew knowledge. In addition,firms with the highest levels
of innovation have an 11% higher return onassets (ROA) and almost 40% higher rela-tive market share when compared to thepoorest performing firms.
A final wrapThe key contribution of this study is that itpaints a picture of what matters in the knowl-edge creation process. More detailed results(available from the authors) show theseresults to be stable and consistent across avariety of industries. This work also high-lights the complex nature of knowledge cre-ation by showing the interplay of acquiredand existing knowledge, as well as the neces-sary individual and organisational capabili-ties needed to transform acquired knowledgeto new knowledge. Finally, and perhaps most
Finally, andperhaps most
convincingly, [thisstudy] shows the
link betweenknowledge and
financialperformance
Figure 2: Distribution of survey respondents across industries
(continued on page 7)
KMAP6
KMAP FEATURE
ADCO, a medium-sized media design-and-execution company, had achievedphenomenal growth since its inceptionin 1990. With this growth came someunexpected challenges, not the least ofwhich was the fact that it created pres-sures to design systems that replacedthe hands-on management style typicalof small start-ups. For Paul Royale, oneof the founding partners, the main prob-lems ADCO was grappling with werecommunication, lack of respect, lack ofcompetences and the lack of a post-project review process.His eyes were opened tothe idea of knowledgebeing regarded as a cur-rency, and that currencybeing worth something toother people. The prob-lem was to encourage orgive an incentive to peo-ple to share the knowl-edge. This was the chargegiven to him by the sevenpartner/owners.
Knowledge sharingwas particularly importantto a company like ADCOthat operated in a dead-line-driven business where you simplyhave to do "what the client wants …when they want it." Whereas ADCOlooked on client management as one ofits key strengths, managing internal rela-tionships took something of a back seat.As one director noted, working well withclients did not necessarily extend toworking well with colleagues; "…we allwork well with clients, but I think inter-nally we are absolutely appalling at shar-ing how we work…ways of workingsmarter." As ADCO grew, the informalnetworking between the partners thatmade it operate smoothly were putunder stress. The model where "…I useother peoples brains for storing informa-tion so I know what they did… when it’srelevant to ask them about it," empha-sised by one of the partners was becom-ing increasing ineffective.
Paul Royale discovered that five lev-els of knowledge were critical to theagency’s success. The first was technicalexpertise – how to make effective videos
and other promotional material. The sec-ond was project management – theunderstanding of what it takes to put amajor project together for a client. Thethird area was understanding clientneeds and delivering marketing value forclients. This has historically been thecompetence that sets ADCO apart frommost of its competitors. The fourth realmof knowledge was the ability to seek outand absorb "what’s new," fresh andtrendy in the industry. The fifth area ofknowledge management, and perhaps
the least important, wasthe storage and retrievalof on-going internalknowledge development.
Recognising that afirm the size of ADCO,with 51 full-time employ-ees and an equal numberof temporary workers,could not afford complexdatabase systems, PaulRoyale focused his effortson developing formalinformal networking andtransfer systems that sub-stituted for expensive ITand fit better with the
company’s "creative" focus. The resultwas three initiatives.
The after-action review (AAR)process was aimed at facilitating moreconstructive feedback and eliminatingmistakes after the completion of eachproject. The business directors decidedto try it for a period of three months tosee if it worked. The importance of suchreviews, especially their timing, has beenemphasised by one director. "We used tosit down every couple of months andlook at mistakes instead of learning fromour mistakes as soon as they happened.I think it’s important to share these thingsas you’re going along, rather thananalysing them three months down theline when it’s too late."
Show-and-tell allows people to do ashort presentation of work that has beendone for certain clients to the rest of theagency. In addition, senior managersgive 20 to 30 minute talks on areas theyfelt would benefit the agency as awhole. The topics discussed have been
fairly broad, such as life skills or rela-tionship management skills.
Informal brainstorming sessionshave been instituted at the initiation oflarge client projects. Part of the impetusbehind these meeting was the failure ofcommunication between the differentclient groups. This lack of informationsharing was highlighted when the oneteam wanted to use "heat-reveal" pro-motional material. Because nobody onthe team had any experience with thetechnology, they went through a longlearning process. In fact, it took severalweeks of painful and expensiveresearch. In the end, the team had founda company that specialised in develop-ing heat-reveal promotional material.When the company was contacted, theteam found out that another group atADCO had worked with this same com-pany several months ago on a promo-tion for another client.
These informal structures were criti-cal to ADCO’s success. They systema-tised meetings and interactions andavoided the failure to reuse relevantinformation and highlighted the sourcesof knowledge inside the firm. Althoughmany in the company bemoaned thefact that most of the larger mainstreamagencies have research departments ora resource libraries that kept them up todate, it was clear that ADCO could notafford to operate such a system, andthat informal development was moreefficient. However, this did not meanthat they ignored more formal databasesystems. Plans were on the books todevelop a database of detailed informa-tion on each employee as a way ofencouraging people to get to know eachother more as well as becoming asource of business-related information.Plans were also in place to updateADCO’s current database – a centralisedrepository of client names, contact num-bers and other very superficial informa-tion that is updated by the client servicepeople responsible for their respectiveclients. However, given the "creative"and "informal" nature of ADCO’s cultureit was felt that such systems could notreplace the more humanistic approachto knowledge management. KM
CASE STUDY: managing know-how at ADCO
Knowledge sharingwas particularlyimportant to acompany like
ADCO thatoperated in a
deadline-drivenbusiness where
you simply have todo "what the client
wants … whenthey want it"
JULY 2001 7
w w w . p b p r e s s . c o m
convincingly, it shows the link betweenknowledge and financial performance. Thisstudy has given us a small but significant stepforward towards understanding the intrica-cies of organisational knowledge.
Subsequent to the work described above,we also examined both quantitatively(through internal surveys) and qualitatively(through interviews), the knowledge manage-ment practices at six firms. These firms alsorepresent a cross-section of industries. Twoof the firms were industrial in orientationwith large labour forces – one in automobileengine design and manufacturing and theother in railway engineering design. Threewere professional business service organisa-tions that were large in their respective mar-kets and also respected for their financial andservice quality performance – one each inlegal services, business services, and execu-tive search. The last firm was a small adver-tising partnership. In total, these firmsgenerated another 357 survey responses and150 interviews.
This case research shows the normativeand prescriptive value of the research. We areable to understand the respective roles playedby various environmental and organisationalfactors and drive solutions that lead to betterinnovative performance. One of these casestudies is included herein (see page 6).
Analysis of the case research reveals anumber of interesting and compelling findings:• there is an over-reliance on formal IT
systems when dealing with knowledgemanagement. Our research shows thatgood IT systems are an absolute neces-sity but are hardly sufficient to serve as abasis of a knowledge management strat-egy. However, even then most IT systemsare inadequate technically and fail tomesh with the organisation’s strategicneeds;
• senior managers have more positive per-ceptions on the role of the organisation’s
incentives for the absorption of knowl-edge than do middle- or lower-level man-agers. Across all organisations we findthat senior managers feel that theirknowledge management incentive poli-cies (e.g. the incentives to use, codify andstore information andknowledge) are effectivebut non-senior managersfeel they do a good job inspite of the policies andsystems;
• senior managers havedifficulty in understand-ing the payoff fromknowledge management.This is most notablydriven by an inability tomeasure knowledge andits impact. Most areafraid to get involvedwith something that theyperceive to be little morethan a fad.
Although our work has obvi-ous academic benefit, whenwe link the survey and caseresearch we find that we have a powerfulexplanatory and diagnostic tool. For exam-ple, the finding that new knowledge creationis a crucial determinant of innovative output(and hence financial performance) is a pow-erful compelling force for managers. Before,all they could hope for was that what thegurus where telling them was true. What weare able to show is that new knowledge needsto be manifested in innovation (i.e. new prod-ucts, service, process, patents, etc) in order toproduce financial outcomes. Similarly, it isone thing to talk about the relationshipbetween knowledge and innovation withoutshowing how the relationship between thetwo is to be operationalised. Our results showthat this is managed through the creativity,consensus and comprehensiveness of thefirm’s problem solving. Changing these three
factors to positive effect helps a firm achievegreater innovate output.
As we look further back into the knowl-edge creation process, we see that informalnetworking is crucial. However, senior man-agers are uncomfortable with things that can-
not be managed. Hence, it isimportant to understand thatalthough informal networkingis critical, there is a linkbetween formal and informalnetworking. The meaning issimple, to achieve effectiveinformal networking theorganisation must have for-mal structures in place thatenhance and build up infor-mal interactions. This leads tothe final critical factor,absorptive capacity. The bet-ter the incentives, both mone-tary and social, driving theindividual to interact bothformally and informally withinternal and external con-stituencies, the more effec-tively will information be
acquired and synthesised into effectiveknow-how.
The strength of the present work is thecomprehensiveness of the investigation ofthe complete information knowledgedecision-making innovation perform-ance chain along with the exactness of itsempirical measurement. However, it goesbeyond positive investigation, and providesmanagers with powerful theoretical guidancebacked by effective benchmarking. KM
By Professor Timothy M. Devinney, Dr.Christine W. Soo and Professor David F.Midgley
The authors may be contacted throughthe Centre for Corporate Change at theAustralian Graduate School ofManagement(e-mail: [email protected])
(continued from page 5)
The finding thatnew knowledge
creation is acrucial determinant
of innovativeoutput (and
hence financialperformance)is a powerful
compelling forcefor managers.
Before, all theycould hope for
was that what thegurus where telling
them was true
KMAP8
KMAP FEATURE 2
Even before the effort of finding andretaining a good knowledge managerbegins, it is important to understand the
potential minefield that this new businesstool represents. The perception of many cor-porate colleagues is that knowledge manage-ment is simply another fad. Remember"re-engineering" and "Six Sigma"? As is thecase with every "back office" rather than arevenue-generating role, there is scepticismon the part of line managers about knowl-edge management’s value and the potentialimpact on revenue targets and costs.
Defining "knowledge management" is notso easy, as there is little agreement on whateither of the two words actually mean. Does"knowledge" cover all aspects of corporatebusiness history, or is it limited to a high-levelanalytic product? When does data becomeknowledge? Debates about the managementof this knowledge can be equally controver-sial. Is managing a database "knowledge man-agement"? Or does knowledge managementonly apply to a more proactive and value-added use of the firm’s history and knowl-edge? The range of opinions on both theseissues is wide, and the debates intense. Ourworking definition is "any new valueextracted from existing information." Thisdefinition forces "value" to be the perform-ance metric and "existing" emphasises theimportance of better stewardship rather thanexpensive new data acquisition.
Another approach that cuts through theconfusion is defining knowledge in terms of"assets." Naming the product "knowledgeasset valuing," stimulates a less scepticalreaction from revenue-driven colleagues. Italso allows one to apply some of the perform-ance matrices that are used for other types ofassets. As a consequence it elevates the seri-ousness and perceived value of "knowledgemanagement" and the knowledge manager.Therefore, the designation "Knowledge AssetManagement" (KAM) and "Knowledge AssetManager" may be useful.
There is an old aphorism about large
organisations which, paraphrased, goes "ifonly IBM knew what IBM knows." Thedilemma of hidden or wasted knowledgeassets in a large organisation has troubledmanagers since Egyptian engineers werebuilding pyramids. How to ensure that thereis "an institutional memory," or an individual"learning curve" based on previous experi-ence is as challenging to those managingblocks of data today as it must have been tothose moving blocks ofstones then. The obstaclesare often defined in terms oftechnologies and standards.Given how ancient the prob-lem is, that is clearly wrong.The genesis of obstacles toeffective knowledge man-agement is human, notmechanical.
There are two funda-mental reasons why knowl-edge is poorly shared orutilised in large organisa-tions: the first is that knowl-edge has no perceivedfinancial value. Little effortis therefore made to extractbenefit from it, let aloneshare it. The second reason is that the knowl-edge is perceived to have significant potentialpersonal value, and is therefore hoardedrather than shared. Both issues are features ofmost dysfunctional KAM organisations.
Mitsubishi used to brag in the late 80sthat it received more than one million pagesof fax documentation every working dayfrom its vast empire of offices around theworld. This river of fax paper was all care-fully photocopied, archived, and then filed inwarehouses. Was it "knowledge"? Not if oneis attempting to apply the "asset value" defi-nition; it was simply accumulated data.Imagine the strategic impact on an enormoustrading and manufacturing enterprise such asMitsubishi if it were able to take this river ofwords and numbers and analyse it for trends,
risks and future opportunities. Imagine inyour own organisation today, if email trafficcould be culled for its asset value in trend-spotting or risk management.
The world’s best knowledge manager iswithout doubt the National Security Agency(NSA) of the United States government. Itmonitors, filters and then stores an unimagin-able stream of data from every source all overthe world 24-hours a day, year in year out,
resulting in trillions upon tril-lions of names, numbers, factsand their patterns. The world’slargest and fastest computers,the world’s best softwaredevelopers and strategic ana-lysts, serve the world’s mostexpensive bureaucracy inknowledge management.They can scour every phonecall, email, and data transmis-sion around the globe forinformation deemed of strate-gic importance to the UnitedStates. And yet, despite theexpenditure of hundreds ofbillions of dollars, and theemployment of nearly 50,000people over the last two
decades, the NSA is, by its own admission,beginning to drown in data rather than suc-cessfully manage this ocean of knowledgeassets. The reason is simple: exponentialgrowth of data traffic in the past decade.
It is estimated that there are now 100 bil-lion emails transmitted annually in the UnitedStates, with that number still accelerating rap-idly. Those emails are getting more data-richand complex as transmission speeds and stor-age capacities increase. How can a serious"knowledge asset management" organisationcope with its own rivers of data if the boffinsand billions of the NSA are floundering?
What do you need to know?The first level of response is "knowing whatyou want/need to know" and ignoring every-
Managing the Knowledge Asset Manager
With so many organisations looking into KM, one query alwaysarises: "What makes a good KM manager?" Robin Sears, managingdirector at executive search firm Korn/Ferry International looks atvarious answers to this important question.
As is the case withevery "back office"
rather than arevenue-generating
role, there isscepticism on the
part of linemanagers about
knowledgemanagement’svalue and the
potential impact ontheir revenue
targets and costs
JULY 2001 9
thing else. The temptation in large organisa-tions to print, photocopy, circulate, andarchive, reams of documentation, often in sev-eral versions with little variation among them,is a huge barrier to successful KAM.Managers want to have their own copy of cru-cial contracts or agreements in addition tothose held in the personal files of other man-agers, the regional and central corporateoffices of an organisation, and in digital for-mat on several levels of corporate servers. Butit is clearly not very wise: not only is it a wasteof resources, it creates a poor "signal to noise"ratio of valuable knowledge versus mountainsof useless data. Extracting the jewels from theflood of photocopies and computer foldersbecomes impossible.
Agreement on what the object of KAMfor the firm should be – what you "need toknow" – is a strategic challenge which needsto proceed the decision to create a structureor begin a search for the key executives tomanage the process.
Who needs to know?The decision about "what one wants to know"should obviously be driven by discussionswith the internal clients of the KAM system.In some organisations, competitive informa-tion about the behaviour of other players in themarketplace is of greater value, for example,than client information. In other organisations,the focus will be on industry trends and poten-tial threats rather than spe-cific competitors. Especiallyat the launch of a new system,while the "green" knowledgemanager is establishinghis/her value to the line man-agement, it is important tokeep the deliverables listshort and the performancetargets low. As in any serviceindustry, it is far better to"under-promise and outper-form" when establishingcredibility. KAM systems that fail to have animpact on the bottom line are typically the vic-tims of attempting too much, rather thanincompetence or insufficient resources.
It is important that the knowledge assetmanager be seen as a peer by line managersnot only in his title, and compensation, butalso in his style, background and presentationability. In other words, the knowledge assetmanager needs to be as effective a salesman
as an analyst, as effective a communicator asa strategist, to succeed. The knowledge assetmanager needs to be the type of executivewho is capable of spotting new opportunitiesand problems for internal clients in a mannerthat wins support, and is not seen as either athreat or a waste of time. Most crucially theperson needs to be seen as a client manage-ment professional, not a librarian.
The "ideal" knowledgeasset manager
One of the first priorities for a new knowl-edge asset manager is identifying the obsta-cles to effective knowledgesharing in the organisation. Ifthe conventional wisdom inthe firm is that the informa-tion gathered from anothergeography or another line ofbusiness has no value to oth-ers, then tackling the "per-ceived value" of knowledgeassets issue should clearlytake priority. If, however,there is a "knowledge hoard-ing" culture in an organisa-tion, that culture needs to be challenged fromday one. Benchmarking against the best pio-neers, sharing an industry or culture is oftenthe best sales tool.
My personal epiphany about the "wallsaround knowledge" came in struggling with
competing and incompatibleemail systems in the days ofX.25 data protocols, amongvarious lines of business ofthe same organisation.Working on a plane trip on mylaptop, I muttered and cursedabout the foolishness ofincompatible systems and thedigital walls blocking datatransfer in the organisation asI jumped back and forthbetween digital barriers. My
seatmate observed my frustration. When Iasked how he dealt with the problem, helaughed, and said, "In the same way you are,cursing!". He was a senior IBM Asia executivewho had responsibility for more than a dozenmanufacturing centres across the region.
I expressed astonishment that workingfor an organisation that designed and builtinformation technology systems, that owned,in Lotus Notes, one of the finest email and
knowledge management systems yet created,and sitting at a senior executive level withaccess to the best equipment and services,that he could experience anything like myproblems. "After all," I protested, "you guysbuild these things!"
He chuckled again, and mildly observedthat I did not understand where these wallsoriginate. With a wry resignation he gentlypointed out that it was no technical obstaclethat prevented him from looking at unfilteredsales and production data from each of theplants he supervised. There were no obstaclesin the software or the communication sys-
tems that prevented himfrom looking straight intothe database servers of theseoperations. It was the desireof each of those plant man-agers that they should beable to screen and filter suchaccess - "especially fromme," he laughed – that cre-ated the digital barriers."Most technological obsta-cles to sharing informationare a fiction," he observed.
The real barrier to knowledge sharing isalmost always human.
This "obvious truth" was a revelation tome. It’s a useful analytic principle aboutknowledge management to this day. In anyorganisation, when one is told that it is "nottechnically possible" to provide unfiltered,or real time, or external access to data orknowledge, the gatekeeper is probably lyingor ignorant or both. Simply calling this bluffis not very useful, however. The effectiveknowledge manager needs to find ways ofwinkling the information from the carefullysheltered cloisters in which it is being pro-tected, building confidence and perceivedbenefit from breaking down the walls.
The successful knowledge asset manageris therefore a combination of diplomaticnegotiator, salesman and administrator. Heneeds to be someone who can see the knowl-edge forest in a mass of data trees; someonewho can make sceptical line managersbelievers on the basis of delivered benefit tothem; and someone who knows that "no" isprobably the most important word in his pro-fessional vocabulary. He or she explains:"Why not" in several fashions that don’t giveoffence. Being clear about what the KAMsystem cannot deliver is also a key success
The successfulknowledge asset
manager istherefore a
combination ofdiplomaticnegotiator,
salesman andadministrator
Most technologicalobstacles to
sharing informationare a fiction .... The real barrier to knowledge
sharing is almostalways human
KMAP10
KMAP FEATURE 2
variable. Explaining, diplomatically, why theKAM system will permit a user to search itsdata freely but cannot be everyone’s "cus-tom-tailored" research department is essen-tial to success and survival.
In our advice to clients about this role,therefore, we emphasise thepersonal qualities and styleof the individual executiverather than their database, orlibrary science or strategicanalysis background, asessential qualities. Is he orshe seen as a leader, as aninnovator? In the retention of such an excep-tional individual, it is important that they bemeasured, performance-tracked andrewarded on the basis of delivery of newvalue from the firm’s existing knowledgeassets. Specific deliverables and targets anddeadlines are as important to a good KAMsystem as any other form of value creation. Ifit can’t be measured it can’t be improved, asthe saying goes.
Creating and deploying metrics that arebelievable and fair is as complex as definingwhat the goals are for any KAM system.Some will argue that the gains are "qualita-
tive" and not measurable. Set "quality"goals then, and measure the trends in per-formance over time!
Even a customer satisfaction survey canbe a useful performance trend monitor.
The CEO or line-of-business head shouldbe the direct report of anyserious KAM role.Reporting to a "non-line"executive simply underminesthe "value generator" statusof the position. One "costcentre" executive reporting toanother is not a good mes-
sage to the firm about the role and value ofknowledge management.
The KAM system goals need to be long-term, multi-faceted and transparent, but eachquarter requires precise deliverables. If thefirm operates on a precise individual revenueallocation system as many professional serv-ices firms do, the system may need to be builtinto the performance measurement structurethrough a "double counting" mechanism.Each revenue dollar is attributed twice andthen "rolled up" in an annual budgetingprocess.
If the organisation manufactures products
or revenue from their distribution, the KAMsystem performance needs to be measured onimprovements in the outputs and margins ofthose businesses. It is important, needless tosay, that the knowledge asset manager not beseen as a competitor for revenue or compen-sation benefits by the KAM system’s internalclients. The knowledge asset manager mustbe seen as someone who genuinely addsvalue to a line manager’s bottom line, not acompetitor for sales revenues or internalexpenditure budgets.
Finally, the best knowledge asset man-ager is a mentor to young executives aboutthe "knowledge sharing" values of the firm,the "wise uncle" who colleagues turn to whenthey’re blocked on a project.
The firm that develops such a model,finds the "wise uncle" to manage it, retainshim or her, and executes precisely willalways be a leader in its space. KM
The author is Managing Director, BoardServices & Management AssessmentPractices for Greater China at Korn/FerryInternational. He has extensive experi-ence in the recruitment and hiringknowledge managers and all levels ofexecutive positions. He can be contactedat (852) 2521 5457.
Set "quality" goals then, and
measure the trendsin performance
over time!
KMAP events calendar JULY – OCTOBER 2001date
Jul 11/13
Jul 18/20
Jul 26
Jul 30/Aug 1
Aug 6/7
Sept 13
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Oct 20/22
name
Intranet ContentManagment
KM Asia 2001
KM in the Finance &Banking Industry
Competitive Intelligencein Business Conference
Developing AKnowledgeManagement Strategy
KM for LegalDepartments
World KnowledgeForum
SupportingOrganisational Learning2001: KM and CBR
location
Sydney, Australia
Singapore
Hong Kong
Singapore
Singapore
Hong Kong
Seoul, South Korea
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organiser
International Quality &Productivity Center
Ark Group
HK KnowledgeManagement Society.
Frost & Sullivan
Singapore Institute ofManagement
Pacific Business Press Events
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contact
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JULY 2001 11
KMAP INTERVIEW
Years before anyone had heard of theterm "knowledge management," aSwedish publishing executive, frus-
trated that he could not understand howand why managing journalists differedfrom traditional management, beganexploring ways of improving the creativecapacity of what we now know as, his"knowledge organisation." Two decadeslater, that frustrated executive is widelyconsidered to be one of the foundingfathers of KM, and he remains on the lead-ing edge of KM implementation strategies.
Now splitting his time between Brisbane,Australia and Bohuslän, Sweden, Dr. Karl-Erik Sveiby, has a varied career background,having worked alternatively as an auditor,accountant, manager at consumer goods giantUnilever, and as a publisher before ending upas one of today’s leading KM consultants. Dr.Sveiby is a much sought after conferencespeaker, has published numerous books andarticles on KM in both Swedish and English,and has consulted worldwide with companiessuch as China Light & Power, Motorola andErnst & Young.
However, it was while working in Swedenat Ekonomi+Teknik Förlag in the early 1980sthat Dr. Sveiby identified the fundamental KMproblems within nearly all organisations thatpresent-day managers still face today. "Ourinformation professionals often did not knowwhat was going on around them, and we asmanagers did not understand why some of oureditorial environments appeared to be morecreative than others," he says, "so I startedexploring ways of solving the problems."Unfortunately, there was very little informa-tion on the subject at that time, and what wasout there did not effectively deal with theissues at hand: "I supported Swedish managersunlearning what the American managementgurus tried to teach us." Thus Sveiby himselfbegan researching and writing his own mate-rial, laying the groundwork for many oftoday’s KM principles.
"I did not know it at the time, but I was
one of the first in the world to study KMtechniques along with a few others such asIkujiro Nonaka in Japan." However, itwould be years before these KM pioneerswould know about, or even understand, eachother’s work: "There were only small pock-ets of KM research at that time. Also, prac-titioners published very little and thematerial published was in different lan-guages . . . the only reason why I publishedanything was because I worked for a pub-lishing company!" He adds that KM did notenter the minds of the English-speakingworld at this time because none of the early-published work was in English, compound-ing KM’s difficulties. The irony that those
purporting to research knowledge manage-ment in those early days could not under-stand each other’s work slowed its initialgrowth and development.
A natural understandingDifference in both culture and language con-tinue to be major issues affecting the studyand implementation of KM today. Sveibysays that there are clear cultural differencesin the priorities and approaches to KM incompanies he has worked with.
He cites the results of his work with hisbusiness simulation course, Tango, as anexample. Tango participants are divided intosix management teams who compete againsteach other for the same customers and keypersonnel. "Tango mirrors the real world,"says Sveiby, "the [participants] learn bydoing as they choose their business strategyand then manage their tangible and intangi-ble assets for long-term financial success.Participants learn to strike a balancebetween attracting the right employees andcustomers and ensuring adequate profits andcash flow." As a result, "what emerges is aclear understanding of how these factorsaffect a knowledge organisation."
When implementing Tango in US com-panies, Sveiby notes that participants focusalmost exclusively on profits and tangibleresults, whereas Swedish companies appearto be over-interested in the people element,making all parties happy, even at theexpense of profits. However, he says thatwhen dealing with Asian companies, thereappears to be a deep, almost innate under-standing of fundamental KM strategy evenwhere pure business acumen is often lack-ing, as in less commercially developedcountries. "Asian cultures seem to under-stand that effectively sharing knowledge inan organisation is more about natural rela-tionships between people rather than justdatabases," he says.
Sveiby says Singaporean managers asremarkably effective in balancing the com-
Home is where the heart is KMAP interviews one of KM’s “founding fathers,” Dr. Karl-Erik Svelby, aboutKM’s humble beginings and why Asian companies should be looking withinas they confront today’s business challenges.
"Asian cultures seem tounderstand that effectively
sharing knowledge in anorganisation is more about
natural relationshipsbetween people rather than
just databases"
KMAP12
KMAP INTERVIEW
petitiveness of pursuing profits with thecooperation of sharing knowledge effec-tively. "Their ability to engage in both com-petition and cooperation, or ‘co-opetition,’resulted in the highest ever recorded marketvalue in a Tango exercise; the total valuecreated capacity of the simulated compa-nies was very high," he says. A real-worldexample of such "co-opetition" is the highlycompetitive automobile industry thatnonetheless, has many instances of cooper-ation between competing companies suchas the sharing of engine technologies, henotes. (See page 13.)
It is the effective sharing of knowledge atthe human level that is most important to KMaccording to Sveiby: "Knowledge is not indatabases, but in people." In fact, he sees adisturbing shift away from the human ele-ment in KM nowadays towards somethingthat is little more than database management."The trouble for KM is that its agenda hasbeen hijacked by American IT companies andconsultants, who make their living from sell-ing IT advice." He explains that, "while IT isessential in today’s globalised world, wemust appreciate its limitations . . . it is not thesolution to every problem."
To this end, Sveiby con-trasts Western culture withits focus on explicit knowl-edge, science and technol-ogy, versus Asian culturesthat traditionally focus onthe human experience andappear to better realise theimportance of tacit knowl-edge. "In the long run, Ithink there is a greaterunderstanding of how to help people find anduse knowledge in Asia," he says.
Nevertheless, Sveiby warns that Asiancompanies may be losing this "natural" edgein KM over their rivals. He has observed "arecent fascination with IT toys in Asia." Again,he takes pains to emphasise the necessity of ITin the modern business environment, but isclear in his position that such technologicalinvestments should not be at the expense ofAsia’s own understanding of knowledge andhow humans interact with knowledge. "Withthe exception of Japan, which is taking an iso-lationist stance, Asia seems to be looking tothe US for its KM model . . . this is sadbecause Asia has such an exciting, home-grown knowledge understanding."
In Sveiby’s opinion, Singapore, in par-ticular, "is very well positioned to be aworld leader in leveraging knowledge forgrowth in the future." He names a number ofreasons for this view. As demonstrated inthe aforementioned Tango simulations,Singaporean managers appear to understandthe balance between IT and people to max-imise the leveraging of knowledge; there isa focus on higher educationin Singapore that is requiredfor a workforce of "knowl-edge creators"; andSingaporeans have "uniquebusiness acumen."
Indeed, an excellentillustration of the effective-ness of Singapore’s leverag-ing of knowledge in themodern economy comesfrom Sveiby’s own 1999study comparing the GrossDomestic Product (GDP) percapita of Australia and Singapore over thelast 25 years. He found that since 1993,Australia, the resource-richest nation in theworld per capita, has consistently lagged
behind the little Singaporeaneconomy with no naturalresources at all – except 3.5million people, in GDP percapita.
As a result, effective KMboils down to two importantfactors, according to Sveiby:maintaining a healthy envi-ronment for creating newknowledge, and the ability toleverage your own knowl-
edge, or not "reinventing the wheel."
Small business challengesThe same principles apply to small busi-nesses in Asia as well, says Sveiby, only ona smaller scale. "Since managers in smallercompanies generally have less informationto deal with, it is much easier for them toeffectively manage knowledge . . . it is thebig companies that have the problems." Inhis view, Asia’s small businesses are verygood at leveraging their own knowledge, theSingaporeans being a very good example,but they often face challenges in maintaininga healthy environment for creating newknowledge.
To accomplish this feat, Sveiby suggests
that businesses adopt a "non-authoritarianwork environment" where workers can "ques-tion existing rules and habits; suggest silly oroutrageous ideas," and where it is "safe toquestion managers." The natural consequenceof such an environment would be a companythat is not afraid to take risks and lose somemoney in the short term for long-termrewards. Unfortunately, he notes, where a
small business is concentrat-ing on day-to-day survival,such risk taking may be adaunting task. Nevertheless, itis a challenge that Sveibybelieves that Asia’s smallbusinesses are up to.
A rich tapestryAnother issue in the emerg-ing face of KM in Asia todayis language. While Englishremains the dominant lan-guage of business, the impor-
tance of other languages in the regioncontinues to grow, and cannot be ignored.Different languages and KM have always hada close connection, says Sveiby, harkeningback to the early days of KM when it devel-oped in Swedish and Japanese beforeEnglish. "Obviously facing different lan-guages can be a barrier to the effective shar-ing of knowledge, but it can also be a richsource of new knowledge," he asserts.
For example, in English, the word"know" means both explicit knowledge – "Iknow about x"; and the capacity to act – "Iknow how to do y". However, in most otherlanguages, these two meanings of "know"each have their own separate words. Extralayers are required to differentiate betweenthe two meanings in English. As a result, heposits, we have ended up with a different,richer notion of KM than if it were only stud-ied and implemented in English. By viewinga multiplicity of languages as an advantagerather than a hindrance, Sveiby says heencourages the use of Asian languages andcultures to build upon and explore KM. hepredicts that "different languages are poten-tially the most valuable source of new andeffective KM ideas" – frustrated managers oftoday should take note. KM
"The trouble forKM is that its
agenda has beenhijacked byAmerican IT
companies andconsultants, whomake their livingfrom selling IT
advice"
Dr. Karl-Erik Sveiby is the founder ofSveiby Knowledge Management andmay be contacted at:www.sveiby.com.au
"Singapore ... isvery well
positioned to be aworld leader in
leveragingknowledge forgrowth in the
future"
JULY 2001 13
The world of computer operating systems (OS), thecomputer program that tells a computer how to run
itself and other programs, is a dangerous place litteredwith the carcasses of numerous competitors whohave fallen by the wayside. However, the vast richesof the OS industry provide an incentive for compa-nies to continue trying for a share of the market-place. The intense competition has led to somevery novel strategies including a good exampleof what Dr. Karl-Erik Sveiby calls "co-opetition."(See ‘Home is where the heart is’ , pp 11-12.)
The current king of the OS hill, as anyonewho has followed the on-going anti-trust law-suit in the United States is aware, is Microsoft’somnipresent Windows. One unique challengerto the Windows domination is an OS initially created as ahobbyist effort by a student, Linus Torvalds, at theUniversity of Helsinki in Finland in the early 1990s.
The fundamental difference with Torvalds’ creation,Linux, compared to other OSs is that it has an open-sourcecode. In other words, the basic formulas and algorithmsthat drive Linux, its "source code," are freely available toanyone wanting to take a look and make improvementsand modifications. Under the licensing terms of Linux, it isvery easy to share knowledge and improvements to theOS, but legally impossible to make it into a proprietaryproduct such as the competing Microsoft Windows. In fact,volunteer programmers around the world, using theInternet as the medium of communications, do most of theon-going development of Linux in a cooperative and com-munal atmosphere. The informality of Linux in a tradition-ally cut-throat industry is typified by Torvalds’ philosophyfor the OS with a penguin as its mascot: "It’s supposed tobe goofy and fun!"
Now it appears that Torvalds’ little band of merry pro-grammers are about to get some big corporate help. IBM,once a bastion of corporate conservatism, has joined forces
with three major Japanese computer server-makers in aneffort to produce better versions of Linux. The informalpartnership will team Big Blue with Fujitsu, Hitachi, andNEC. The companies will communicate informally and
hold meetings to compare notes, share knowledgeand eliminate duplication of work.
The freewheeling style of the Linux commu-nity is still somewhat novel for Big Blue, among
the most tradition-bound of computing compa-nies. For example, in the cooperative work withthe Japanese companies, "there are no con-tracts. There's nothing formal," says Dan Fry,
Director of IBM’s Linux Technology Centre. Since all fourcompanies are working with the open-source communityto produce better versions of Linux, it makes sense to setup a relationship, says Dan Powers, IBM’s director ofInternet technology. Though this corporate involvementwill mean that Linux development is becoming more for-mal, the original improvisational nature of the Linux com-munity still dominates, adds Fry.
This arrangement typifies the growing cooperativeeffort among many companies, who are intense competi-tors, to collectively improve Linux, which has beendescribed as "a cancer that attaches itself in an intellectualproperty sense to everything it touches," by Microsoft CEO,Steve Ballmer.
This "co-opetition" by Microsoft’s OS challengers isnot surprising. By banding together, they hope to developthe David in Linux to topple the Windows Goliath. And ifthey have to be "goofy and fun" going about that, itseems, then so be it. KM
"Co-opetition" is helping out the little penguin
Linux mascot Tux
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KMAP14
KMAP FEATURE 3
It is now clear that organisations thatmanage performance through measure-ment do better than those that don’t. If
people throughout an organisation are wellinformed about their current processes andlikely future levels of process perform-ance, and they know the factors that havecontributed to those results, they will allmake more confident and more effectivedecisions.
Process measurement-based manage-ment that is focused on strategy, objectives,issues and decision-making leads to success.Major benefits of performance managementinclude:• better achievement of objectives (often
objectives are exceeded);• better and quicker decision-making (fast
action is demanded);• staff are better aligned to common goals;
and• managers and staff have greater confi-
dence and motivation.
What is processperformance management?
Process performance management ensures amanagement style that plans and acts toachieve strategic and operational objectivesby measuring and monitoring both importantprocess results and more importantly, theprocess drivers.
"Results or outcomes" are commonly
measured at the end of a process, and arecommonly referred to as "lagging or histori-cal indicators." Drivers, on the other hand,are measures usually coming from within abusiness process, and are referred to as "lead-ing indicators." See Figure 1.
But, not all measurement is equally good.Many organisations are in chaos because of aflood of data that is far too detailed, toopoorly integrated, and difficult to access, plusof little actual value in making key decisions.Too much data is just too confusing!
Some measures bear little relationship towhat the organisation is trying to achieve –they are not relevant to objectives, nor tied tothe strategy. Other measures are misleadingbecause their meanings are poorly understood,unclear or ambiguous. Sad to say, but somemeasurements, are manipulated to confuse (orde-fuse) the management from taking strongactions early enough to head off a disaster.Irrelevant or misleading measures thereforelead to poor, or even disastrous, decisions.
Just knowing that you have a performancegap is not enough to guide decision-makingand action. To take effective action, you alsoneed to know why you have a gap. Measuringand then understanding the reasons for the gapwill lead you to make the right decision. That’sreally what knowledge management attemptsto achieve by providing accurate and timelyinformation that creates new knowledge andthat can be acted upon.
What to measure?Selecting what to measure is one of the mostimportant tasks for those who wish to focuson and manage process performance.Without professional and independent out-side help, many managers will avoid meas-ures that focus on shortcomings in theprocesses for which they are responsible.
Until recently, there has been a wide-spread belief among business executives thatthey can control the firm’s performance withlittle more than the firm’s financial informa-tion. After all, financial measures are the bestdeveloped of all, and have been in use forhundreds of years. In fact, the ubiquitousGenerally Accepted Accounting Principleswere developed for bankers and investors,not for operating managers.
Early warning signsMost key performance (lagging) indicators tellus how we have done in the past. If all youhave is lagging indicators in front of you, it islike driving your car by looking in the rear-view mirror. You know exactly where you havebeen, but it is not at all clear where you aregoing. Your chance of running into somethingis obvious. As a result, it is important to clas-sify measures according to whether they:• tell us about the past; or• give an early indication of what is likely
to happen in the future in the short-termor the long term.
For example, we may get a report that showsthat there is a large increase in the number ofitems sold in the latest month. This is a "lag"indicator – it tells us about the past. By itself, itis not a good indication of what is likely to hap-pen this month or in future months. On thesame report, we may also have a rapidly fallingforward order book for the next few months.
However, a change in forward orders is a"lead" indicator of sales units. It tells us what islikely to happen in the short-term future. Inmanaging key processes we need to look forlead measures that give us an early warning ofwhat is likely to happen. So, our lead measures
Performance management: Know where your business is goingBy Gerald Yearsley, Leading Edge Consultants, Singapore
The Process
Start End
Inputs OutputsThe Process
Driver 1 Driver 2 Driver 3 Driver 4
Result 1
Figure 1: Drivers and Results
Driver measurements are taken from within the process. Result measurements are taken at the end of the process.
JULY 2001 15
need to be grouped according to how muchwarning they give us and how reliable they are.
A classic short term leading indicator isOn Time Delivery (OTD). In many cases, weknow that we are going to be late in deliveringgoods and services before the customer does.In that case we are given an indicator thatshould provoke us to inform the customerahead of what may become a disaster for bothour reputation and the customer’s plans.
What are the drivers?If action is to be taken, if decisions have to bemade, we would like these to be based on thebest information available. Effective deci-sions are based on good information that cre-ates new knowledge and understanding ofwhat has led to the current position, and howfuture results can be influenced or controlled.Therefore, we need measures that tell us whyor how a key indicator level was reached. Weneed to have measures of the key processdrivers of each area of performance.
The drivers of short-term results may wellbe different from the longer-term drivers. Forexample, in the short term, (month to month)sales of our products are affected by targetedadvertising, special promotions and temporarypricing programmes. We need to measure theseto understand the linkage between them.
In the longer term (say two years or so),strategic initiatives such as distributionagreements, partnerships, joint ventures withbuilders, cross-selling of products, develop-ment of new products and new uses for oldproducts are a more powerful influencer. As aresult, we may have different explanatorymeasures for short-term tactical targetachievement than for achievement of long-term strategic objectives. Whatever these are,they provide guidance to our decisions, andpoint to and encourage quick action. Usingthese measures, our executives and teams arelikely to make more effective decisions andare less likely to make decisions that lead topoorer results than intended.
Where to stop? Clearly, if we attempted to make a completelist all of the "causes" of drivers of perform-ance for an organisation, the list would bevery long. We could look to the drivers of theperformance, the drivers of those drivers, andso on. There has to be some point at whichwe say: "Enough is enough!"
We have found that we do not need to
create many levels of causality before wegain no added value by going any deeper.Obviously, this has to be examined on a case-by-case basis. Nevertheless, the general ruleis that as long as you have reasonable infor-mation on which to base a confident decision,you have gone deep enough. I have seen fewinstances where the hierarchy of drivers ismore than about two levels deep.
Simplicity is also an issue here. If weprovide too much information, it will eithernot be used or people will become confusedand make poor decisions. Discover whatreally drives the process performance andonly use that. If the drivers are all going inthe right direction, the results will happen.
Cost is very much a consideration. If thecost of creating and maintaining extra meas-ures were greater than the value added byhaving the information, it would be silly toinclude them.
Good measure designThe most important principle of good meas-ure design is that of relevance. What is meantby relevance depends on the type of measure;but the measure must be directly relevant tothe purpose intended. That may seem obvi-ous, but take the time to examine what yourown company measures. Are most of thesereally relevant, do they really provide youwith a pro-active capability to make changes?Or are they just provided for informationafter the fact?
There are many other principles of goodmeasure design that are worth considering.Unfortunately, this is an extensive topic thatcannot be covered in a short article.
Examples of good measurement princi-ples are:• lack of manipulation opportunities such
as use of actual cycle time as a measureor asking the customer to measure you;
• completeness and transparency;• reliability;• relevance to the task at hand;• choose "drivers" over "results";• robustness and accuracy;• provided on-time, every time;• available to many, not just a selected few;
and• good common sense.
Risks and rewardsMost organisations have a strong desire tolink employee remuneration with perform-
ance measures. This, on the face of it, makesa great deal of sense. We naturally base this onthe assumption that this will motivateemployees to achieve or exceed corporateperformance targets. There is also the sensiblefinancial argument that rewarding employeeson any other basis is likely to result in lessthan optimal financial performance.
However, to rush into such a formal linkbefore the performance measure frameworkhas been well proven can, and has, resulted inanomalous rewards. These financial rewardlinks have to be very carefully considered.
With the continuing complexity of busi-ness, globalisation and the new knowledgeeconomy, it is often not possible for individ-uals to be personally responsible for a gain inprocess performance. Most of us rely on ourpeers, and our team members for a great dealof our success. This, I suspect is why moreand more companies are adopting a two-stageremuneration system, that both rewards theindividual and also has a component forrewarding the team (or department, or busi-ness unit).
In summaryProcess performance measures on the surfaceare logical and necessary to manage theprocess well. Customers are best servedwhen key processes work well, and withinthe expected performance goals we set forthem. Measuring them properly, and choos-ing the right set of metrics, is far more impor-tant than most managers realise.
Doing something about it however israther harder than it looks. For the proper setof measures to emerge, we need to fullyunderstand not only the process itself and itsinternal workings, but also what the cus-tomers need for the outcomes. It is best toengage a specialist for this task, as the in-depth analysis of a complicated process willuse special skills that come with experienceand the knowledge of how process dynamicsplay together. It also requires that the processmetrics be able to be displayed (charted) inways that will emphasise the cross-linkagebetween key drivers. KM
The author is a Singapore-based special-ist in the areas of Business ProcessTransformation, Process Excellence,Leading Change, Knowledge Innovationand Balanced Scorecard. He can be con-tacted at (65) 280 1316, or by email [email protected]
Visit: http://www.leadingedge.com.sg
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