Developing A Knowledge Strategy
Knowledge is a hot topic. During 1997 there have been at least 10 significant conferences on knowledge management in the UK. Numerous articles and books have appeared, including the special supplement on intellectual capital in June's Long Range Planning. Managing your company's knowledge more effectively and exploiting it in the marketplace is the latest pursuit of those seeking competitive advantage. Knowledge and other forms of 'intellectual capital' are the 'hidden assets' in a company. They do not appear on the balance sheet in annual reports, yet they underpin value creation and future earnings potential. Knowledge intensive companies, like Microsoft and Glaxo Wellcome, have market values at least 10 times the value of their physical assets.
The Knowledge Advantage
How can companies use knowledge to secure a strategic advantage? In a nutshell, its about generating greater value through the knowledge in products, people and processes:
- Knowledge in Products: 'Intelligent' or 'smart' products can command premium prices and be more beneficial to users. One example is the 'intelligent' oil drill that bends and weaves it way to extract more oil than ever from the pockets of oil in underground formations.
- Knowledge in People: "Our most valuable asset", according to many company reports, although the actual way they are treated and managed often belies this. 'Learning Organisation' programmes, such as that at Anglian Water, is one way of nurturing and applying underutilised talent.
- Knowledge in Processes: In many companies there are often differences in performance levels of 3:1 or more among different groups performing the same process. Closing such a gap saved Texas Instruments the cost of one new semiconductor fabrication plant (a $1billion investment).
These are not the only ways that companies are creating strategic advantage through knowledge but give a flavour of what is possible. Others include active management of your intellectual property portfolio of patents and licences, and creating new businesses that exploit your internally generated information and knowledge.
Two Thrusts of Strategy
What strategies are companies adopting to maximise the returns on their knowledge asset? In a year long study * of international best practice two types of strategy were found. The first is to make better use of the knowledge that already exists within the firm, for example by sharing best practices. Very often leading managers comment: "if only we knew what we knew". Too frequently people in one part of the organisation reinvent the wheel or fail to solve customer's problems because the knowledge they need is elsewhere in the company but not known or accessible to them. Hence, the first knowledge management initiative of many companies (between a third and a half according to surveys) is that of installing or improving an Intranet.
The second major thrust of knowledge focussed strategies is that of innovation, the creation of new knowledge and turning ideas into valuable products and services. This is sometimes referred to as knowledge innovation. Many managers mistakenly believe this is about R&D and creativity. Our research found no shortage of creativity in organizations. The real challenge is not to lose these creative ideas and to allow them to flow where they can be used. This needs better innovation, knowledge conversion and commercialisation processes. This thrust of strategy is the most difficult, yet ultimately has the best potential for improved company performance. It is effective commercialisation of ideas that has taken companies like Netscape and Formula One to multi-million dollar corporations in just a few years.
The Knowledge Dimension
One of the practical problems of developing knowledge strategies or adding a knowledge dimension to other strategies is the complex nature of knowledge. As we now know from many disappointing artificial intelligence initiatives of the 1970s, you cannot easily package knowledge into a black box and have it perform miracles. A potentially worrying trend about today's knowledge management movement is that IT managers, information professionals and software suppliers are jumping on the bandwagon and merely substituting the word 'knowledge' for 'information'. That is not to say that information is unimportant, since a good IT infrastructure, good information management (in the library sense) and effective information solutions, such as data mining, decision support tools, document management and groupware, are essential foundations. However, they do not go far enough.
The difficulty comes, not through handling 'explicit' knowledge, but 'tacit' knowledge which is harder to express and codify. Very often the most valuable knowledge that an organisation has is in the heads of its people, and those of its stakeholders, especially customers. However, "people walk", so forward looking companies continually to seek ways of locking it in to their organisation. The two complementary approaches are:
- Converting it to a more explicit form - in documents, processes, databases etc. This is often referred to as "decanting the human capital into the structural capital of an organization". I call this the "Western tendency" since it's the main emphasis of many European and US knowledge programmes.
- Enhancing tacit knowledge flow through better human interaction, such that the knowledge is diffused around the organisation and not held in the heads of a few. In Japan various 'socialisation' activities support this kind of knowledge flow, that by its very nature also sparks the generation of new ideas and knowledge. Add some basic elements of good human resource management, including a stimulating environment, personal development plans, motivation and suitable reward and recognition systems (such as knowledge sharing awards and stock options), then there is less chance of your best knowledge workers wanting to leave.
Seven Knowledge Levers
|Customer Knowledge||Developing deep knowledge sharing relationships. Understanding the needs of your customers' customers. Articulating unmet needs. Identifying new opportunities.||Steelcase - an office products manufacturer has totally redefined its market into knowledge worker productivity through opening a customer knowledge channel from its product end-users into its R&D.|
|Stakeholder Relationships||Improving knowledge flows between suppliers, employees, shareholders, community etc. using this knowledge to inform key strategies.||Toshiba collects comparative data on suppliers ranking 200 quantitative and qualitative factors. It has an active suppliers network and association where knowledge is shared and suppliers are integrated into future strategies.|
|Business Environment Insights||Systematic environmental scanning, including political, economic, technology, social and environmental trends. Competitor analysis. Market intelligence systems.||Smith Kline Beecham have evolved a virtual library that delivers market updates, patent information and a wealth of externally sourced material to the desk tops of its research scientists.|
|Organizational Memory||Knowledge sharing. Best practice databases. Directories of expertise. Online documents, procedures and discussion forums. Intranets.||Price Waterhouse is typical of several consultancies who have knowledge databases to allow sharing of company knowledge. In addition to the KnowledgeViewSM they have knowledge centres that provide human analysts and navigators. It helps them solve customer problems faster.|
|Knowledge in Processes||Embedding knowledge into business processes and management decision making.||CIGNA made their best underwriting knowledge available as guidance screens in their computerised underwriting processes. This helped them turn a loss into a profit.|
|Knowledge in Products and Services||Knowledge embedded in products. Surround products with knowledge e.g. in user guides, and enhanced knowledge-intensive services.||Campbell Soup's "Intelligent Quisine" (IQ) delivers weekly packages of nutritionally designed, portion controlled meals to those suffering hypertension or high cholesterol.|
|Knowledge in People||Knowledge sharing fairs. Innovation workshops. Expert and learning networks. Communities of knowledge practice.||Tetra Pak Converting Technologies has learning networks, where people from across the organisation, pool, update and develop their expertise in key technologies such as laminating and printing.|
Creating Successful Knowledge Strategies
The table shows domains of the business where the knowledge dimension can be used as a strategic lever, either to add value to products and services or to improve organisational performance. For example, several surveys show customer knowledge heading the list of an organisation's most important knowledge i.e. knowledge of their needs, their relationship with you, and mutually beneficial opportunities. Note that such a lever goes far beyond the normal practice of customer satisfaction surveys.
However, as a strategist you will know that it is people and processes, rather than the content of a strategy, that will determine its ultimate success. Our analysis of organisations that exhibit best practice in knowledge innovation shows a number of recurring characteristics:
- Clear and explicit links to business strategy. Is the knowledge strategy something separate or is it simply another layer or view of existing business strategy? How does knowledge or know-how add value to your business strategy? Conversely, what exploitable knowledge products, processes or expertise emanate from your business strategy?
- Knowledgeable about knowledge - real understanding of the knowledge advantage. How much is knowledge discussed in your organisation? How well is it understood? Is the knowledge dimension a key element of every product plan, marketing plan, strategic initiative, annual budget, and personal development plan?
- A compelling vision and architecture. Is the knowledge facet of your business framework that guides management decisions? Would an investor give you millions for your intangible ideas?
- Knowledge leadership and champions. Are there enthusiastic proponents of the knowledge agenda throughout your business? Does your CEO visibly reiterate the importance of your organisational knowledge to your business success?
- Systematic knowledge processes. Do you have systematic processes for capturing knowledge (both external and internal), organising it, and sharing it throughout your organisation? Do you have processes that enhance knowledge creation and innovation? Do you have policies and procedures to protect your knowledge assets?
- A well-developed knowledge infrastructure (both 'hard' and 'soft'). Are people and information readily accessible through your computer and communications networks? Do these networks extend outside the organisation - to customers, suppliers, and world-class experts? Can you find what or who you want quickly and efficiently? Does your culture promote innovation and learning? Are your organisation structures flexible and adaptive? Are your personnel systems geared to recognising and rewarding individual and team knowledge contributions.
- Appropriate bottom line measures. Do you measure the contribution of knowledge? Do you value your intangible assets? Do you balance financial performance indicators, with non-financial measures that underpin value creation? Do you measure knowledge flows? Do you use some of the new metrics, like those in Skandia's Navigator or Karl Erik Sveiby's Intangible Assets Monitor?
If you have ready and realistic answers to such questions, you have probably already developed strategic advantage through the application of knowledge. If not, then now is the time to start, since our analysis suggests that, like quality in the last decade, innovation through knowledge will be a key factor in business success as we enter the new millennium.
* Creating the Knowledge-based Business, David J. Skyrme and Debra M. Amidon, Business Intelligence (1997).
This article first appeared in the January 1998 edition of Strategy, the bi-monthly magazine of the Strategic Planning Society.
For a more detailed practical guide, see our K-Guide Developing a Knowledge Strategyat our K-Shop.
Last updated: 29th March 2011