Knowledge Management

Knowledge management seeks to increase organizational capability to use knowledge as a source of competitive advantage. The field has risen to prominence along with the ”knowledge worker,” who is someone who does work which involves knowledge which is socially complex, causally ambiguous, and tacit. Relevant theories include social capital theory and the resource based view of the firm. Practitioner approaches to knowledge management emphasize ways of creating, diffusing, using, and evaluating knowledge.

Strategy researchers attempt to create statements about the link between industry structure and firm performance in order to deliver guidance to leaders of firms. This guidance advocates either selection of an appropriate formula for changing industry structure, or diversification into more profitable industries. However, the value of such guidance is undermined by its key assumption of interfirm homogeneity – all firms can implement such strategies. An emerging theory of the resource based view (RBV) of the firm and of sustainable competitive advantage implies that such strategies are not able to protect the firm against imitation or substitution. This has led to the rise in importance of theories of business strategy which privilege resources such as knowledge which are socially complex, tacit, and causally ambiguous.

Socially complex resources are routines and skills which, because of their relational nature, are difficult to imitate or substitute. Knowledge is a socially complex resource because its creation and use depend on networks of relationships and because it is collectively owned. Much work in organizations is done in interaction with others, where the knowledge is created and used collaboratively rather than in isolation, and for this reason where it is difficult to disentangle what each person knows individually from the collectively generated knowledge. Other work is done in networks of friends and contacts who inform each other of opportunities, send warnings, and answer questions. The value of knowledge within social networks often depends on its surprise value. Such knowledge tends to come from ”weak ties” – distant rather than near relationships. Networks also can act as passage ways for accessing information. Through ”weak ties” and ”friends of friends” network members can gain privileged access to information and opportunities. In order to explicate such properties of networks and communities a theory of social capital has developed. Social capital theory argues that there are intangible goods such as knowledge, trust, goodwill, and reputation which animate social networks, constitute social structure, and facilitate the actions of individuals. It has been argued that organizations have advantages over markets for the development and use of social capital. This is because organizations are able to protect secrets and to create a trustful working environment better than markets. Such a view places knowledge as a central element within the organizational community, which concerns itself with the creation of new knowledge by means of combination and exchange of previous knowledge.

Causally ambiguous resources are ones which cannot be easily identified as inputs to performance improvements and so do not help competitors who wish to learn why a firm is so successful. However, the assumption is that organization members are sufficiently able to identify the value of those resources. Knowledge is a causally ambiguous resource because how firms do things is not just a question of procedures, policies, and routines. There are also experience, degree of care and heedfulness, cooperativeness and collective confidence which also facilitate the use to which knowledge is put and which help to improve business performance.

Tacit resources are implicit and therefore uncodifiable and so are again difficult to copy. Knowledge is a tacit resource because it is used and exchanged in language and interaction, where context cues and conversational sequence provide implicit information about the meaning of what is said. Even when written down, there is meaning to be gained by reading ”between the lines.”

Recent times have seen theoretical developments in how organization members are seen and how they see themselves in terms of a greater emphasis on knowledge. More educational qualifications and training, more reliance on an empowered, flexible workforce which is able to take the initiative, together with a shift from manufacturing into services, have all led to a greater emphasis on the intellectual content of work. These forces have all been behind the rise of the term ”knowledge worker.”

The simplest definition of knowledge worker is someone who does work which involves knowledge which is socially complex, causally ambiguous, and tacit. Many attempts have been made to measure ”intellectual capital,” which is defined as the knowledge dimension of social capital. Simple methods include a focus on observable and tangible assets such as patents and routines. However, this misses out many intangibles and any serious attempt to measure intellectual capital would need to take account of these. Intellectual capital is structurally embedded in the organization because the individual’s knowledge is enriched and applied in a specific context created by the organization. That context includes routines, equipment, and people. Intellectual capital is relationally embedded in the organization because the individual’s knowledge is enriched and applied in relationships with others. Knowledge is therefore partly a function of who one knows and what relationships one has with them. However, those relationships are only partly influenced by the organization – they may span across organizational boundaries. Intellectual capital is also influenced by cultural and cognitive factors such as inertia, cognitive bias, curiosity, and motivation.

Many employees now have responsibilities which are difficult to track and control and therefore employees are increasingly difficult to motivate. Employees with complex responsibilities are valuable because the tasks they perform would take some time to teach to a replacement, who may not be as good anyway. Employees are increasingly disloyal to their company, despite attempts by companies to develop ”strong cultures.” They are therefore free to leave and join other organizations. Old fashioned, heavy handed control methods may backfire in such cases, as the knowledge held by such workers ”walks out the door.”

The slimming down of workforces as a quick and simple method of economic stabilization in times of market difficulties has led to gaps in knowledge, or to gaps in organizational methods for handling knowledge. These gaps have added to the perceived importance of knowledge. If knowledge workers make up the organizational brain, removing whole levels of the hierarchy is analogous to small parts of the brain dying in a stroke, with its effect on dislocation of the organizational memory. Just as in the case of stroke in an individual, organizational memory may recover over time if there are suitable recovery practices.

The search for non imitable organizational capabilities in line with resource based theory of the firm has increased the importance of organizational identity. Organizational identity is ”who we are as an organization.” It increases one’s sense of belonging, commitment, and identification. To conceive of knowledge as an individual competence misses the potential for linking individual knowledge to organizational identification. Instead, conceiving of organizational identity as the collective meaning of knowledge creation ensures that individual members feel part of a common activity, and discourages them from individualistic, alienated, and opportunistic means of gaining compensation. This is all to say that such management messages avoid drawing attention to individual competencies and instead draw attention to organization level capabilities.

The view of knowledge in relation to organizational processes which has been most influential with practitioners has been the mechanistic view that there are different, separable processes. These are creation, diffusion, use, and evaluation of knowledge.

The realization that the creation of explicit knowledge can be measured whereas the creation of tacit knowledge cannot, and that the tacitness of knowledge prevents free transfer between a firm’s workers, has led to at least two very different responses. One approach, of great appeal to practitioners, and influenced by a mechanistic view of knowledge, has been to suggest that tacit knowledge should be trans formed into explicit knowledge rather like changing base metal into gold. This approach centers upon the transformations possible between tacit and explicit knowledge. These transformations are explicit to explicit (socialization), tacit to explicit (externalization), tacit to tacit (combination), and explicit to tacit (internalization). This classification has been linked to steps of learning. However, few empirical tests have been carried out of these ideas, perhaps because of the intractability of tacit knowledge.

The other approach to the creation of knowledge more favored by academic researchers has been to investigate tacit knowledge as a socio logical phenomenon. For example, language is a rich field of investigation because much of the information contained in interactions is situated and context dependent. Another example is social networks in which knowledge is under stood and evaluated as part of social relationships – the intellectual content of a piece of information may be less influential in its being believed compared to whether the source is liked or trusted. Another example is activity theory, which argues that knowledge is embedded in -and therefore inextricable from – tasks or, more precisely, interdependencies between tasks, “tools,” and people.

The desire to measure and therefore control knowledge may be a misguided objective. The crucial question here is whether the control of knowledge leads to over standardization. Individuals have their own “craft” ways of doing things, whereas organizational interest is furthered by standardization. Knowledge is continuously created by economic activity, and attempts to standardize too much may eradicate any novelties that eventually become sources of a firm’s uniqueness. Over standardization may also lead to the creation of routines which can be imitated by competitors.

The diffusion of knowledge has been investigated intensively for some years. Starting from the simple electricity analogy that knowledge starts from a source and eventually, despite resistance, reaches a destination or target, the field has changed considerably. The transfer of knowledge depends upon the target’s ability to handle or understand it: its ”absorptive capacity.” Thus, a new industrial process will more likely be taken up by another company if it has scientists and technologists who understand it, and if it has industrial processes which can turn it into valuable products. The barrier may not only be in terms of understanding the content of the knowledge to be transferred. It may also be a question of the cultural gulf which exists between the sending and receiving organization – a difficulty experienced by many multinationals. The idea of absorptive capacity has been generalized to say that the target must be treated carefully by the source in order to facilitate diffusion. For example, Edison bought up a gas company and designed electric lamps of similar dimness to gas lamps in order first to overcome the resistance of monopoly gas sup pliers, and secondly to adapt to consumers’ expectations of dimness. Only later did electric lights increase in brightness when the idea of the electric light had been accepted. This is an example of the value of institutional theory in understanding knowledge diffusion.

Institutional theory states that much organizational action is caused not by instrumental or rational objectives, but instead takes on the values or prescriptions contained in institutional rules. Organizations adopt many rational seeming procedures and techniques not because they make members more knowledgeable about what they are doing, but just in order to be seen to be following methods accepted by other organizations. It may be that a lot of the value of knowledge, and of knowledge workers, may be of this institutional kind. That is, knowledge may often be valued because it provides the organization with legitimacy rather than because it makes things work better or faster.

When looked at in this way, knowledge becomes a political good, which adds to an organization’s reputation and which is useful to specific professional groups in their attempts to increase their status and power. Historical studies have been undertaken of companies which have shown that the status and power of professional groups have changed markedly. In the early twentieth century, manufacturing and production engineering were the most powerful professionals. Since then there has been a rise in both the finance and the marketing functions, as companies have come to realize that scarce resources in their environment, first of finance and then of consumer demand, give precedence to people who have knowledge about such scarce resources.

One dimension of knowledge management of interest to practitioners is the extent to which the creation, diffusion, use, and evaluation of knowledge can be facilitated by information and communication technology, and how much it is facilitated by human resource management by creating a cultural environment which encourages information sharing and knowledge creation. Technology offers several tools, but requires cultural support to be fully effective. Intranets enable organizations to share back ground information such as procedures and policies and to make this information available on an as needed basis. But intranets depend upon individuals adding information for others to read. Databases which contain organization members’ area of specialization enable members to contact the most suitable person to help them solve their problem. But members may refuse to give the time requested to solve a problem, especially if the organization rewards individuals narrowly according to specific tar gets. Or members may refuse to share their knowledge because they do not wish to lose their indispensability and the power associated with it. Project diaries which chronicle surprises and problems surmounted are valuable sources of advice for the project teams that follow. But often project teams are too busy to fill in the diary, or members wish to hide mistakes. Multinationals spawn huge numbers of projects in each unit and subsidiary. These projects often duplicate each other in different regions or departments. Databases of projects and their main features enable members to avoid such duplication. But such databases also threaten team budgets and so often teams refuse to add their own project’s details. Such databases also cross regional boundaries and so threaten the independence of regional units.

Where such methods have been systematized they therefore require a centralized system directing their use. An example is the use of Rapid Action for Process Improvement Deployment (RAPID) at all Ford’s car factories as a method of publicizing new process improvements between plants. However, it is important that local subsidiaries have sufficient freedom to develop their own solutions to problems if they wish, because markets and regulations may vary considerably between subsidiaries. Finding the right balance is partly judging the product as global (oil), nearly global (cars), or national (insurance). It is also a matter of giving regions the choice of getting the diffused and reused idea cheaply or the local solution at full cost.

These examples show the importance of the human factors involved in technology use with regard to knowledge management. Knowledge management is therefore as much an area of concern for human resource management as it is for information technology. The main aim of such policies is to encourage information sharing. One approach is to create a ”strong culture,” that is, a strong identification with the organization, a positive organizational identity. This is not just a job for a communications department, because what members consider their organization to be will affect, for example, how they train new recruits, how they deal with customers, and how they check quality. Another approach is to use rewards of both money and recognition. Most consultancy firms, in which knowledge sharing is vital, give their consultants high basic salaries so that doing ”good citizen” activities such as sharing information with others does not lead to loss of the consultant’s income. Consultancy firms which do not do this have problems motivating their staff to cooperate enough to share information. Directly rewarding specific actions such as how much an individual writes is difficult because it may be quality rather than quantity that counts. The best situation is when reputation as an expert is its own reward.

Behind all questions of effective knowledge management is the existence or nonexistence of trust in working relationships. After all, this is the advantage of organizations rather than markets as methods of creating economic value. Some organizations have trust and some do not. Inside most companies there exist depart mental feuds, scapegoating, blame shifting, and ruthless competition for promotion. Trust takes time to build up. Trust exists between identifiable individuals. It is based on perceived good will to be likely to promise something and also on competence to do what the person promises to do. But there is also such a thing as institutional trust, where being from a certain company or department or region or nationality gives a person a guaranteed trustworthiness even when we do not know that person. Because of the growing importance of knowledge and therefore of information sharing, trust is also growing in importance. It is one of the fundamental qualitative features of organizational climate. Because it is impossible to acquire imitatively it is a potent source of competitive advantage.

Several routines have gained prominence as methods of facilitating knowledge sharing. One is the Peer Assist scheme at BP. When a difficult decision arises (e.g., when a new oil rig has to be started involving risky investment) the person who is responsible calls for experts to come to a meeting to give their views. This is resourced by the sending units on the argument that the visiting experts gain by picking up new experience and new credits on their CVs. Although conflicts between strangers might develop, it seems that the need of experts to get invited to such meetings leads them to control their level of criticism. Another routine is the Asset Consulting Team approach at Chevron, where if you have a problem, you go and visit a specialized internal consulting unit.

Most practitioners recognize knowledge management as talking about and spreading ”best practice.” One problem is that this year’s best practice becomes last year’s bad practice. Spreading best practice may also result in sharing ignorance. These problems occur when knowledge management becomes concerned merely with diffusion and not with creation of new knowledge.


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