TECHNOLOGY MANAGEMENT 2A: KNOWLEDGE MANAGEMENT CP Beukman Engineering Management Programme University of Canterbury Issue 2.0 February 2000

TECHNOLOGY TECHNOLOGY MANAGEMENT 2A: MANAGEMENT 2A: KNOWLEDGE KNOWLEDGE MANAGEMENTMANAGEMENT

CP BeukmanCP Beukman

Engineering Management ProgrammeEngineering Management Programme

University of CanterburyUniversity of Canterbury

Issue 2.0 February 2000Issue 2.0 February 2000

ScopeScope

To explain the principles governing To explain the principles governing

the management of knowledge as the management of knowledge as

an intangible asset an intangible asset

The approach taken by Karl Erik The approach taken by Karl Erik

Sveiby will be used.Sveiby will be used.

ObjectivesObjectives

Define knowledge management in Define knowledge management in

terms of market valueterms of market value

Link intangible assets to market valueLink intangible assets to market value

Introduce accounting procedures for Introduce accounting procedures for

knowledge assetsknowledge assets

Philosophical backgroundPhilosophical background

Trust is the bandwidth of communication.Trust is the bandwidth of communication. The difference beteen a company’s market The difference beteen a company’s market

value and book value can be directly value and book value can be directly attributed to its attributed to its intangible assetsintangible assets..

Knowledge grows when shared and used; Knowledge grows when shared and used; unused knowledge deteriorates.unused knowledge deteriorates.

Tapping into customer and employee Tapping into customer and employee knowledge is one of the steps to building a knowledge is one of the steps to building a more successful organisation. more successful organisation.

KE SveibyKE Sveiby

GlossaryGlossary

Individual competenceIndividual competence• capacity to act in a wide variety of situationscapacity to act in a wide variety of situations

External structureExternal structure• customer and supplier relationships and the customer and supplier relationships and the

organisation’s imageorganisation’s image

Intangible assetsIntangible assets• equivalent to intellectual capital and includes equivalent to intellectual capital and includes

assets not (yet) entered into the balance sheetassets not (yet) entered into the balance sheet

Glossary 2Glossary 2 Intellectual capitalIntellectual capital

• knowledge that can be converted to valueknowledge that can be converted to value

• individual intellect, organisational intellectindividual intellect, organisational intellect

Internal structureInternal structure• what we normally call the “organisation”what we normally call the “organisation”

• fuzzy areas = culture, systems, processesfuzzy areas = culture, systems, processes

Invisible assetsInvisible assets• see intangible assetssee intangible assets

Glossary 3Glossary 3

Invisible equityInvisible equity• difference between market value & visible difference between market value & visible

equityequity Knowledge managementKnowledge management

• art of creating value by leveraging art of creating value by leveraging intangible assetsintangible assets

Tacit knowledgeTacit knowledge• informal knowledge that is not made explicitinformal knowledge that is not made explicit• we know more than we can tellwe know more than we can tell

Glossary 4Glossary 4

KnowledgeKnowledge• process-of-knowingprocess-of-knowing• capacity to actcapacity to act• human facultyhuman faculty

Tangible assetsTangible assets• accounting term - able to “touch” assetaccounting term - able to “touch” asset

ValuesValues• knowledge era value created from intelligence knowledge era value created from intelligence

& competence of people & customer relations& competence of people & customer relations

CORE COMPETENCE

&ABILITIES

CREATE

PRODUCTS AND

SERVICES

WHICH THE MARKET BUYS AND PAYS FOR

SELECTIVEFLOW

TECHNOLOGY:SKILL, KNOWLEDGE

(KNOW-HOW)

SELECTIVE FLOW INNOVATION

WHAT DRIVESTHE PROCESS?

= $

CORE COMPETENCE

&ABILITIES

CREATE

PRODUCTS AND

SERVICES

WHICH THE MARKET BUYS AND PAYS FOR

SELECTIVEFLOW

TECHNOLOGY:SKILL, KNOWLEDGE

(KNOW-HOW)

SELECTIVE FLOW INNOVATION

KNOWLEDGE& INTANGIBLES

= $

The New Wealth - intangible The New Wealth - intangible assetsassets

Share values above book valueShare values above book value

How is the price premium above the How is the price premium above the

net book value explained?net book value explained?

Value of intangible assets exceed the Value of intangible assets exceed the

value of tangible assets in many value of tangible assets in many

casescases

Assets Finance

CashCurrent AssetsEquipment

DebtEquity Visible

Equity

Assets Finance


DebtEquity Visible

Equity

Customer CapitalExternal Structure

Structural CapitalInternal structure

Human CapitalIndividualCompetence

Inte

llect

ual C

apita

l

Mar

ket

Val

ue

Assets Finance


DebtEquity Visible

Equity

Customer CapitalExternal Structure

Structural CapitalInternal structure

Human CapitalIndividual Competence

InvisibleEquity

Inte

llect

ual C

apita

l

Mar

ket

Val

ue

Invisible AssetsInvisible Assets

Individuals create external and internal Individuals create external and internal structures to express themselvesstructures to express themselves

ExternalExternal• customer and supplier relationships & imagecustomer and supplier relationships & image

InternalInternal• organisation, culture, IP, brandsorganisation, culture, IP, brands

CompetenceCompetence• education, skills, experience, energy, attitudeeducation, skills, experience, energy, attitude

Intangible Assets

ExternalStructure

InternalStructure

Competenceof

People

Market Value

ExternalStructure

InternalStructure

Competenceof

People

Asset Framework

Intangible AssetsShareholders’ Equity

Capital: an Industrial Era Capital: an Industrial Era termterm

External structureExternal structure• in stead of customer capitalin stead of customer capital

Internal structureInternal structure• in stead of structural capitalin stead of structural capital

Individual competenceIndividual competence• in stead of human capitalin stead of human capital

Knowledge is in some Knowledge is in some ways the opposite of ways the opposite of CapitalCapital

Shared knowledge growsShared knowledge grows• you give me a $; I gain $1, you lose $1you give me a $; I gain $1, you lose $1

• shareshare knowledge, we both have it knowledge, we both have it

Unused knowledge deterioratesUnused knowledge deteriorates• use deteriorates tangible assets (car, use deteriorates tangible assets (car,

computer, machine, road, building)computer, machine, road, building)

• skill skill not not used will deteriorate used will deteriorate

Intangibles become a Intangibles become a Determining FactorDetermining Factor

If companies consist of more If companies consist of more

intangibles than tangibles, then the intangibles than tangibles, then the

intangibles will be the determining intangibles will be the determining

factorfactor

Intangible assets Intangible assets

Intangible Assets

ExternalStructure

InternalStructure

Competenceof

People

ImageRelationships

PatentsBrand names

SystemsProcesses

CultureManagement

EducationSkills

ExperienceAttitudeEnergy

Intangible assets in more Intangible assets in more detaildetail

External structureExternal structure• assets like image, relationships with assets like image, relationships with

customers, vendors, and also competitors customers, vendors, and also competitors

and other associations.and other associations.

In short, external structure refers to In short, external structure refers to

assets that depend on relationships assets that depend on relationships

outside the organisation.outside the organisation.


Internal structureInternal structure• that is the organisationthat is the organisation

• assets like patents and brand names, assets like patents and brand names, manuals, systems, processes, culturemanuals, systems, processes, culture

Managers may be regarded as part of Managers may be regarded as part of internal structure because it is their internal structure because it is their task to maintain and keep it viable.task to maintain and keep it viable.


CompetenceCompetence• education, skills, experience, energy and education, skills, experience, energy and

attitudesattitudes

Competence may make or break the Competence may make or break the relationships with the customers and relationships with the customers and the products or services provided.the products or services provided.

Knowledge ManagementKnowledge Management

The art of creating value by The art of creating value by leveraging intangible assets.leveraging intangible assets.

Need for a different paradigm to Need for a different paradigm to that of the industrial era:that of the industrial era:• one must be able to visualise the one must be able to visualise the

organisation as consisting of nothing organisation as consisting of nothing but knowledge and knowledge flows.but knowledge and knowledge flows.

Value: Industrial vs. Value: Industrial vs. KnowledgeKnowledge

Industrial era factory created value from Industrial era factory created value from

physical goods, moving them from physical goods, moving them from

supplier into the factory and out to supplier into the factory and out to

customers.customers.

Value is created by Value is created by adding resourcesadding resources like like

labour, energy to inputs.labour, energy to inputs.

Value: Industrial vs. Value: Industrial vs. KnowledgeKnowledge

Knowledge era companies add Knowledge era companies add

value not from the physical value not from the physical

resources, but from the resources, but from the

intelligence and competenceintelligence and competence of of

people producing outputs, as well people producing outputs, as well

as their relationships with their as their relationships with their

customers. customers.

Managing Intangible Managing Intangible AssetsAssets

Need to identify which areas can Need to identify which areas can

yield the highest return for the yield the highest return for the

organisation.organisation.

Managing Intangible Assets

ExternalStructure

Individual’s Competencies

InternalStructure

Assets and FlowsAssets and Flows

Two options to effectively leverage Two options to effectively leverage

assets:assets:

• increase each asset by working with the increase each asset by working with the

asset itselfasset itself

• increase each asset by usingincrease each asset by using flows flows from from

other assetsother assets

Assets & Flows

ExternalStructure


InternalStructure

Work with Assets Work with Assets ThemselvesThemselves

Each one of these assets must be Each one of these assets must be

managed differently in order to managed differently in order to

create the best possible value from create the best possible value from

them.them.

Work with Assets Work with Assets Themselves 2Themselves 2

Management of an individual’s Management of an individual’s

competence means creating competence means creating

environments conducive to creativity, environments conducive to creativity,

learning and knowledge creation.learning and knowledge creation.

These activities are traditionally the These activities are traditionally the

realm of HR departments.realm of HR departments.

Work with Assets Work with Assets Themselves 3Themselves 3

Managing the external structure means Managing the external structure means

improving the relationships with improving the relationships with

customers, suppliers and other customers, suppliers and other

stakeholders outside the organisation.stakeholders outside the organisation.

This is traditionally the task of This is traditionally the task of

marketing, PR and sales departments.marketing, PR and sales departments.

Knowledge Flows and Knowledge Flows and External StructureExternal Structure

How can relationships with external How can relationships with external

customers be improved?customers be improved?

Some customers can bring in new ideas.Some customers can bring in new ideas.

Other customers are valuable to have in Other customers are valuable to have in

terms of image.terms of image.

Cusomer endorsement/reference.Cusomer endorsement/reference.

ExternalStructure


InternalStructure

Knowledge Flow & External Structure

Knowledge Flow & Internal Knowledge Flow & Internal StructureStructure

IT system creates flow from individual IT system creates flow from individual

competencecompetence

Capturing Capturing tacit knowledgetacit knowledge into a system into a system

so that others may benefit from it.so that others may benefit from it.

Capture Capture customer data customer data to support to support

dialogue with customers.dialogue with customers.

ExternalStructure


InternalStructure

Knowledge Flow & Internal Structure

The Office: A Factory for The Office: A Factory for Production or a Space for Production or a Space for creationcreation

Office space - isolated or connected?Office space - isolated or connected?

Knowledge flowKnowledge flow

Internal control systems such as Internal control systems such as

measurement MIS are important in measurement MIS are important in

encouraging/preventing knowledge encouraging/preventing knowledge

creation/flowcreation/flow

Rand Corporation example.Rand Corporation example.

Knowledge Flows and Knowledge Flows and Individual CompetenceIndividual Competence

Employees learn from each otherEmployees learn from each other Employees learn from customersEmployees learn from customers

Internal structure can support or hinder Internal structure can support or hinder flowflow• MIS, reward systemsMIS, reward systems

TRUST IS THE BANDWIDTH OF TRUST IS THE BANDWIDTH OF COMMUNICATIONCOMMUNICATION

Knowledge Flows & Individual Competence

ExternalStructure


InternalStructure

Trust is the Bandwidth of Trust is the Bandwidth of CommunicationCommunication

Investing in improving the level of Investing in improving the level of

trust in an organisation may trust in an organisation may

dramatically increase the dramatically increase the

knowledge flows, and is probably knowledge flows, and is probably

much more profitable than spending much more profitable than spending

the same amount on an IT system.the same amount on an IT system.

More on Asset More on Asset ManagementManagement

Managing the internal structure means Managing the internal structure means

improving the organisation so that the improving the organisation so that the

core staff know people who are working core staff know people who are working

directly working with customers.directly working with customers.

• ITIT• HRHR• AdministrationAdministration

Leveraging AssetsLeveraging Assets

The real knowledge management The real knowledge management

challenge is to leverage all assets challenge is to leverage all assets

so they all work together to so they all work together to

maximise results for customers.maximise results for customers.

Six most common strategies:Six most common strategies:

Leveraging Assets

ExternalStructure


InternalStructure

Knowledge Management Knowledge Management StrategiesStrategies

1.1. Transfer of information & best practices Transfer of information & best practices

2. Capture data about customers2. Capture data about customers

3. Leverage R&D into several applications3. Leverage R&D into several applications

4. Create more value from existing4. Create more value from existing

intellectual assetsintellectual assets

5.5. Create strategy focused on individuals’ Create strategy focused on individuals’

innovation & knowledge creationinnovation & knowledge creation

6.6. Commit to a “Knowledge Focused Commit to a “Knowledge Focused

Strategy”Strategy”

KM Strategies

ExternalStructure


InternalStructure

1. Transfer of tacit knowledge into information

3. Leverage R&D

2. Capture customerdata

KM Strategies

ExternalStructure


InternalStructure

5. Create a strategy based on individuals’ innovation

6. Knowledge based strategy

4. Create value from existing intellectual assets

1. Transfer of Information 1. Transfer of Information & best practices via IT & best practices via IT SystemsSystems

Invest in IT systems for capturing Invest in IT systems for capturing

an individual employee’s tacit an individual employee’s tacit

knowledge into softwareknowledge into software

• best practice databasebest practice database

• analytical modelsanalytical models

• built-in maintenance diagnosticsbuilt-in maintenance diagnostics

2. Capture data about 2. Capture data about customerscustomers

Invest in IT systems for capturing Invest in IT systems for capturing customer data or competitive customer data or competitive intelligence and building new networksintelligence and building new networks

• market information databasemarket information database

• FAQ databasesFAQ databases

• customer profilescustomer profiles

• sales support systemssales support systems

3. Leverage R&D into 3. Leverage R&D into several applicationsseveral applications

Find more than one application for Find more than one application for

the R&D knowledge, skills & the R&D knowledge, skills &

competencecompetence

• 3M example - R&D projects serve 3M example - R&D projects serve

different applications different applications

4. Create more value 4. Create more value from existing intellectual from existing intellectual assetsassets

Create more value out of existing Create more value out of existing

patentspatents

Sell processes to other companiesSell processes to other companies

Create value from internal structuresCreate value from internal structures

• Skandia sells back-office systemsSkandia sells back-office systems

5. Create strategy focused 5. Create strategy focused on individuals’ innovation & on individuals’ innovation & knowledgeknowledge

Adopt a strategy that focuses on an Adopt a strategy that focuses on an individual’s innovation & knowledge individual’s innovation & knowledge creationcreation

• professional services partnershipsprofessional services partnerships

# This aspect will later be addressed as # This aspect will later be addressed as “Unconventional Wisdom”“Unconventional Wisdom”

6. Commit to a “Knowledge 6. Commit to a “Knowledge Focused Strategy”Focused Strategy”

Leverage all intangible assetsLeverage all intangible assets

• customer (external)customer (external)

• processes (internal)processes (internal)

• individual capabilityindividual capability

What is missing?What is missing?

What about our customers?What about our customers?

Two areas not addressed:Two areas not addressed:1. Our customers1. Our customers

2. What our customers can do for us2. What our customers can do for us

To what extent can flow from customers To what extent can flow from customers to our people or internal structure be to our people or internal structure be used?used?

What is missing?What is missing?

““Intangible revenues”Intangible revenues” must be must be used.used.

Knowledge Focused StrategyMcKinsey & Co

ExternalStructure


InternalStructureIndustry data leveraged

to many clients

* Develop own concepts* Information on all projects collected & shared* Internal job rotation

* Collaborative culture “one firm”* Partner ownership* Cultural indoctrination


ExternalStructure


InternalStructure

* Focus on high image clients* Close relations with selected clients* Nurture relationships with universities

* Former employees alumni* Publicise concepts* Big assignments by teams


ExternalStructure


InternalStructure

* Give founded advice to clients based on own concepts* “Clients 1st, Firm 2nd”

* Recruit bright young highly educated people* “Up or Out” Career* Juniors in teams with seniors

Questions - Questions - Customer Customer AssetAsset

How can we better utilise those How can we better utilise those

customers that actively endorse our customers that actively endorse our

products/services?products/services?

What kind of projects can we create What kind of projects can we create

that will allow our staff to learn that will allow our staff to learn

more from our customers? more from our customers?

Questions - Questions - Individuals’ Individuals’ CompetenceCompetence

How can we leverage the skill of How can we leverage the skill of

“Masters” to improve the skills of “Masters” to improve the skills of

“Juniors”?“Juniors”?

How can we capture the skills of How can we capture the skills of

Masters into software?Masters into software?

Questions - Questions - Internal Internal StructureStructure

How can we create an office space How can we create an office space

that supports sharing of tacit that supports sharing of tacit

knowledge?knowledge?

How can our existing unique How can our existing unique

knowledge be used in other knowledge be used in other

products/services?products/services?

Handy WebsitesHandy Websites

Bright Future MoRST NZBright Future MoRST NZ• http://www.morst.govt.nz/bright/http://www.morst.govt.nz/bright/

index.htmindex.htm

Karl Erik SveibyKarl Erik Sveiby• http://www.knowledgecreators.com/http://www.knowledgecreators.com/

km/keskm/kes

Documents

TECHNOLOGY MANAGEMENT 2A: KNOWLEDGE MANAGEMENT CP Beukman Engineering Management Programme University of Canterbury Issue 2.0 February 2000