MBA
(DISTANCE MODE)
DBA 1735
KNO
KNO
KNO
KNO
KNOWLEDGE MAN
WLEDGE MAN
WLEDGE MAN
WLEDGE MAN
WLEDGE MANA
A
A
A
AGEMENT
GEMENT
GEMENT
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IV SEMESTER
COURSE MATERIAL
Centre for Distance Education
Anna University Chennai
Author
Dr DrDr Dr
Dr. R. SEN. R. SEN. R. SEN. R. SENAP. R. SENAPAPAAPAPAAAATHITHITHITHITHI Professor and Head
Department of Management Studies Adhiparasakthi Engineering College
Melmaruvathur – 603 319 Reviewer DR.T DR.T DR.T DR.T
DR.T.V.V.V.V.GEETHA.V.GEETHA.GEETHA.GEETHA.GEETHA Professor
Department of Computer Science and Engineering Anna University Chennai
Chennai – 600 025
Dr Dr Dr Dr
Dr.T.T.T.T.V.T.V.V.V.V.Geetha.Geetha.Geetha.Geetha.Geetha Professor
Department of Computer Science and Engineering Anna University Chennai
Chennai - 600 025
Dr Dr Dr Dr
Dr.H.P.H.P.H.P.H.P.H.Peereereereereeru Mohamedu Mohamedu Mohamedu Mohamedu Mohamed Professor
Department of Management Studies Anna University Chennai
Chennai - 600 025
Dr DrDr
DrDr.C.C.C.C. Chella.C. Chella. Chella. Chellappan. Chellappanppanppanppan Professor
Department of Computer Science and Engineering Anna University Chennai
Chennai - 600 025
Dr Dr Dr Dr
Dr.A.K.A.K.A.K.A.Kannan.A.Kannanannanannanannan Professor
Department of Computer Science and Engineering Anna University Chennai
Chennai - 600 025
Copyrights Reserved (For Private Circulation only)
The author has drawn inputs from several sources for the preparation of this course material, to meet the requirements of the syllabus. The author gratefully acknowledges the following sources:
1. Knowledge Management-Classic and Contemporary Works, Edited by Daryl Morey, Mark Maybury and Bhavani Thuraisingham, Universities Press, Hyderabad, Reprint Edition, 2007.
2. Knowledge Management for Competitive Advantage by Harish Chandra Chaudhary, Excel Books, First Edition, 2005.
3. Knowledge Management Tools and Techniques, edited by Madanmohan Rao, Butterworth-Heinemann, An imprint of Elsevier, Oxford, UK, 2005.
4. Unleashing the Knowledge Force, by Ganesh Natarajn and Uma Ganesh, Tata McGraw-Hill, First Reprint, New Delhi, 2007.
5. Knowledge Management by Sudhir Warier, Vikas Publishing House Pvt Ltd, Second Reprint Edition, Noida, 2007.
6. Knowledge Management-Design and Implementation Edited by Tapas Mahapatra and Shalini Khandelwal, The ICFAI University Press, Hyderabad, First Edition, 2005.
7. Knowledge Management by Shelda Debowski, John Wiley & Sons Australia Ltd, First Edition, 2006. 8. Knowledge Management for Business Strategy Edited by N.M.Shanthi, The ICFAI University Press,
Hyderabad, First Edition, 2006.
9. The Knowledge Management Toolkit by Amrit Tiwana, Pearson Education, Second Edition, New Delhi, 2006.
10. Knowledge Management Edited by Nasreen Taher, The ICFAI University Press, Hyderabad, First Edition, 2005.
11. Knowledge Management by Elias M. Awad and Hassan M. Ghaziri, Pearson Education, Delhi, Second Impression, 2008.
Inspite of at most care taken to prepare the list of references any omission in the list is only accidental and not purposeful.
Dr. R. SENAPATHI Author
UNIT I INTRODUCTION
Knowledge Economy – Technology and Knowledge Management – Knowledge Management Matrix – Knowledge Management Strategy – Prioritizing knowledge strategies – knowledge as a strategic asset. UNIT II KNOWLEDGE ACQUISITION AND PROCESSING
Knowledge Attributes – Fundamentals of knowledge formation – Tacit and Explicit knowledge – Knowledge sourcing, abstraction, conversion and diffusion.
UNIT III KNOWLEDGE MANAGEMENT SYSTEMS
Knowledge Management and organizational learning, architecture – important considerations – collection and codification of knowledge – Repositories, structure and life cycle – Knowledge Management infrastructure – Knowledge Management applications – Collaborative platforms.
UNIT IV KNOWLEDGE CULTURE IN ORGANISATIONS
Developing and sustaining knowledge culture – Knowledge culture enablers – implementing knowledge culture enhancement programs – Communities of practice – Developing organizational memory.
UNIT V KNOWLEDGE MANAGEMENT – LOOKING AHEAD
Knowledge Management tools, techniques – Knowledge Management and measurements – Knowledge audit – Knowledge careers – Practical implementation of Knowledge management systems – Case studies.
REFERENCES
1. Key issues in the New Knowledge Management –Joseph M. Firestone and Mark W. McElroy, Butterworth – Hienemann.
2. Knowledge Management – Classic and contemporary works Edited by Daryl Morey & others Universities Press India Private Limited.
3. Knowledge Management, Shelda Debowski, John Wiley & Sons.
4. Knowledge Management, Sudhir Warier,Vikas Publishing House Private Limited.
5. Knowledge Management System Theory and practice,Edited by Stwart Barnes Thomson Learning. 6. Handbook on knowledge management,Edited by CW. Hol Sapple Springer.
CONTENTS
UNIT I
OVERVIEW OF KNOWLEDGE MANAGEMENT
1.1. INTRODUCTION 1
1.2. LEARNING OBJECTIVES 2
1.3. THE CONCEPT OF KNOWLEDGE MANAGEMENT 2
1.3.1 Definitions of knowledge management 3 1.3.2 Objectives of knowledge management 5 1.3.3 Motivation for knowledge management 6
1.3.4 Knowledge management cycle 8
1.3.5 Domains of knowledge management 9
1.3.6 Uses of knowledge management 11
1.3.7 Nature of knowledge management 12
1.4. DICIPLINES OF KNOWLEDGE MANAGEMENT 13
1.5. EVOLUTIONS OF KNOWLEDGE MANGEMENT 14
1.6. SHORT HISTORY OF KNOWLEDGE MANGEMENT 15
1.7. AREAS FOR RESEARCH IN KNOWLEDGE MANAGEMENT 16
1.8. KNOWLEDGE ECONOMY 19
1.8.1 Background of knowledge management 21
1.8.2 What is knowledge economy? 21
1.8.3 Impact of knowledge in the knowledge economy 22 1.8.4 Characteristics of knowledge economy 23
1.8.5 Key drivers of knowledge economy 23
1.8.6 Growth of IT industry in knowledge economy 25 1.8.7 Implications of knowledge economy 26
1.9. INDIA AS A KNOWLWEDGE ECONOMY 27
1.10. TECHNOLOGY AND KNOWLEDGE MANAGEMENT 28
1.10.1 Electronic technology for knowledge management 29 1.10.2 Information technology for knowledge management 31
1.10.3 Knowledge management technology 32
1.12. KNOWLEDGE MANAGEMENT STRATEGY 38 1.12.1 The need for knowledge management strategy 38 1.12.2 Development of organizational KM strategy 39
1.13. PRIORITISING KNOWLEDGE STRATEGIES 40
1.14. KNOWLEDGE AS A STRATEGIC ASSET 41
1.14.1. Asset value of knowledge 43
UNIT II
KNOWLEDGE ACQUISITION AND PROCESSING
2.1 INTRODUCTION 47
2.2 LEARNING OBJECTIVES 47
2.3 PERSPECTIVES ON KNOWLEDGE 47
2.3.1 Data, Information and knowledge 48
2.3.2. Defining knowledge 51
2.4 KNOWLEDGE ATTRIBUTES 51
2.5 FUNDAMENTALS OF KNOWLEDGE FORMATION 53
2.5.1 Knowledge formation 53
2.5.2 Flows of knowledge 53
2.6 ORGANISATIONAL KNOWLEDGE 54
2.7 TACIT AND EXPLICIT KNOWLEDGE 56
2.7.1 What is tacit knowledge? 56
2.7.2. What is explicit knowledge? 59
2.7.3 Typical application of tacit and explicit knowledge 62 2.7.4 Basic beliefs between tacit and explicit knowledge approaches 62 2.7.5 Comparison of properties of tacit Vs explicit knowledge 62 2.7.6 Advantages and disadvantages of tacit
Vs explicit knowledge approaches 63
2.7.7 Four modes of knowledge conversion 64
2.8 ORGANISATIONAL KNOWLEDGE CREATION 65
2.8.1 Knowledge sourcing 66
2.8.2 Knowledge abstraction 68
2.8.3 Knowledge conversion 69
2.8.4 Knowledge diffusion 69
KNOWLEDGE MANAGEMENT SYSTEMS
3.1 INTRODUCTION 73
3.2 LEARNING OBJECTIVES 73
3.3 KNOWLEDGE MANAGEMENT AND
ORGANISATIONAL LEARNING 73
3.4 HE CONCEPT OF ORGANISATIONAL LEARNING 74
3.4.1 Definitions of organizational learning 76 3.4.2 Benefits of organizational learning 77
3.4.3. What is learning organizations? 77
3.4.4 Orientation for effective knowledge dissemination 78 3.4.5 Characteristics of learning organization 81 3.4.6 Characteristics of the traditional Vs learning organization 81 3.4.7 Facilitators of organizational learning 82
3.4.8 The five learning disciplines 82
3.5 ARCHITECTURE FOR ORGANISATIONAL LEARNING 84 3.6. CATURING AND CODIFICATION OF KNOWLEDGE 87
3.6.1 Capturing tacit knowledge 88
3.6.2 Other knowledge capture techniques 94
3.7 KNOWLEDGE CODIFICATION 99
3.7.1 Codifying knowledge 100
3.7.2 Codification tools and procedures 100
3.8 KNOWLEDGE MANGEMENT INFRASTRUCTURE 104
3.9 REPOSITORIES 110
3.9.1 Content of knowledge repository 111
3.9.2 Features of knowledge repository 111
3.9.3 The design of knowledge repository 112
3.9.4 The knowledge refinery 113
3.9.5 Repository life cycle 113
3.9.6 Repository structure 114
3.10 KNOWLEDE MANAGEMENT APPLICATIONS 114
3.11 COLLABORATIVE PLATFORMS 117
3.11.1 Features of platforms 118
3.11.2 Tools for collaborative platform 119 3.11.3 Collaborative knowledge applications 122
UNIT IV
KNOWLEDGE CULTURE IN ORGANISATION
4.1 INTRODUCTION 127
4.2 LEARNING OBJECTIVES 129
4.3 ORGANISATIONAL CULTURE 129
4.3.1 Knowledge cultures 130
4.3.2 Improving knowledge culture 131
4.4 KNOWLEDGE CULTURE ENABLERS 133
4.5 IMPLEMENTING KNOWLEDGE CULTURE
ENHANCEMENT PROGRAMS 137
4.6. MAINTANING THE KNOWLEDGE CULTURE 139
4.7. COMMUNITIES OF PRACTICE 141
4.7.1. Defining communities of practice 141 4.7.2. Communities of practice in organizations 142 4.7.3. Importance of communities to organizations 145 4.7.4. Developing and nurturing communities of practice 146
4.8 DEVELOPING ORGANISATIONAL MEMORY 149
UNIT V
KNOWLEDGE MANAGEMENT - LOOKING AHEAD
5.1 INTRODUCTION 153
5.2. LEARNING OBJECTIVES 154
5.3. KNOWLEDGE MANGEMENT TOOLS AND TECHNIQUES 154 5.3.1. Knowledge capture and creation tools 154 5.3.2. Knowledge sharing and dissemination tools 159 5.3.3. Knowledge acquisition and application tools 166 5.3.4. Strategic implications of KM tools 170
5.4. KNOWLEDGE MANAGENMENT AND MEASUREMENT 171
5.5. KNOWLEDGE MEASUREMENT TECHNIQUES 179
5.5.1. Intangible asset measurement 179
5.5.2. Intangible asset monitor 181
5.5.3. IC Rating 183
5.5.4. Balanced scorecard 183
5.6.1. Aims and objectives of knowledge audit 188
5.6.2. Key tasks of K-audit 189
5.6.3. Process mapping 190
5.6.4. Outcomes of knowledge audit 191
5.6.5. Components of knowledge audit 191
5.7. KNOWLEDGE CAREERS 194
5.7.1. Organisational knowledge role classification 195 5.8. CLASSIFICATION OF KNOWLEDGE
MANAGEMENT CAREERS 196
5.8.1 The qualities and attributes of CKO 197
5.8.2 Knowledge management analyst 198
5.8.3 Knowledge architect 198 5.8.4. Knowledge strategist 199 5.8.5. Knowledge manager 200 5.8.6. Research analyst 201 5.8.7. KM consultant 202 5.8.8. Media specialist 202
5.8.9. Senior market intelligence librarian 203
5.8.10 Knowledge engineer 203 5.8.11 KM specialist 204 5.8.12 Intranet developer 204 5.8.13 KM director 205 5.8.14 Director of ontologies 205 5.8.15 Ontologist 206 5.8.16 NLP specialist 207
5.8.17 Knowledge development manager 207
NOTES
UNIT I
INTRODUCTION
1.1 INTRODUCTION
Today’s organizations are fundamentally different as compared to organisations that existed two decades ago in terms of their functions, structures and style of management. The new organisations put more premium on understanding, adapting and managing changes and competing on the basis of capturing and utilizing knowledge to better serve customers, improve the operations or to speed up the delivery of their products to markets. The emergence of these new organizations calls for a new way of management, which is generally known as ‘Knowledge Management’ (KM).
To begin any topic, it is useful to have a perspective and background to understand what is going on with respect to that topic. Now knowledge management is widely known and practiced in many large organizations, it might be useful to get an overview on this subject before we discuss the details of it. Knowledge management is the hottest subject of the day. The question is: what is this activity called knowledge management, and why it is so important to each and every one of us? Why is it important to adopt this new methodology of management? How to successfully implement KM in organizations? The following section offers some emerging perspectives in response to these questions.
This chapter provides an introduction to the study of KM by looking at the overview of KM with regard to its meaning, usefulness, history, future, limitations, etc, and also briefly examines the nature and types of knowledge. The multidisciplinary roots of KM are enumerated, together with their contributions to the discipline. The importance of KM today is described together with the emerging roles and responsibilities needed to examine KM implementation. The emergence of economic system with knowledge as its basic ingredient is enumerated and the need to develop knowledge management strategies to stay competitive in today’s environment were pointed out and finally the need to prioritize the knowledge strategy is justified.
NOTES
1.2 LEARNING OBJECTIVESAfter studying this Unit, you should be able to understand the following: • The definition, meaning and evolution of knowledge management • Describe how KM helps organizations
• Outline the history of KM • Identify the key process of KM
• Know the nature, characteristics and key drivers of knowledge economy • Identify and compare the technology components of KM
• The impact of KM matrix and its parts
• Describe the KM strategy and its need in the context of KM • Analyse knowledge as a strategic asset and its value
1.3 THE CONCEPT OF KNOWLEDGE MANAGEMENT
Knowledge management, as it is practiced today, is a system of technologies focused upon the delivery of strategically useful knowledge and expertise, the availability of which facilitates effective collaboration and timely decision-making. The strategically literate employee, armed with the best and most up-to-date knowledge, delivered in a timely manner, will produce work that results in more satisfied customers, increased success and corporate value.
Knowledge management, before the term was coined, used to be simply the transfer of knowledge from one person to another, the result of which enabled the recipient to benefit from the collected wisdom of the more experienced members of an organization or group. For instance, knowledge transfer happens when the founder of the family business trains his sons and daughters to run the business. It also takes place when a young person goes to college to learn from a renowned professor and when an apprentice welder trains under a master welder. Yet, today, companies have learned that there is much more to knowledge transfer than what took place in the past. They have seen their competitors leap ahead by using technology and sound knowledge transfer principles (newly re-discovered) to create dynamic collaborative environments that deliver knowledge strategically—when and where it is needed and to the people who need it—at the front line where the client solution is being invented. This is knowledge management today.
We must not confuse knowledge with information. The two are distinct concepts that function in completely different ways. Information is tangible, hard numbers, facts. Knowledge is intangible, mental awareness, a part of the process of learning, a “habit” burned into the mind. Information represents the working and monitoring of physical objects. Knowledge represents mental objects, intellectual units that have a practical component. Information is independent of context. With knowledge the context affects the meaning and value of the knowledge. Information is easily transferable by means of recording and recitation. Knowledge requires learning and habituation for effective transfer.
NOTES
Information is easily reproducible by means of copying. Knowledge is seldom reproduced in a consistent fashion because it is filtered according to the perspective of each individual, his context and understanding.
Information is not knowledge. That was realized clearly during the Information Age when organizations found themselves drowning in huge in-house stores of unusable data. The fundamental difference between knowledge management as it was practiced in the past and how it has evolved today is that corporations are now using network technologies to enable employees to find and use knowledge and, in the process, contribute to a more direct impact on customer satisfaction and corporate value.
Companies that effectively use knowledge break it down into its basic components. Knowing why represents having a basic understanding of the reasons for facts, conditions, job responsibilities, client requirements, etc. Knowing what means knowing the cause of a problem or condition. Knowing where provides a spatial reference to understanding. Knowing how provides the critical element for problem solving, the knowledge of how to get something done. Knowing when provides a temporal reference and is closely tied to timing and opportunity development.
The major shift brought about by current perspectives on knowledge management is the shift in the value proposition between employer and employee. Employees have become more valuable assets because the knowledge they possess and use on behalf of customers is now recognized as vital to the success of the organization. Yet, if knowledge is an asset, it has to be managed in the same way as financial and physical assets. Estimates indicate that 70 - 80 percent of what employees know is hidden. Many organizations today don’t know what they know and who knows it.
KM Viewpoint 1.1
In 1996, teams of leading heart surgeons from five New England medical centers observed one another’s operating room practices and exchanged ideas about their most effective techniques in collaborative learning experiments. The result was a 24% drop in their overall mortality rate for coronary bypass surgery. The concept of Knowledge Management proves to be a life-saver here!
1.3.1 Definitions of knowledge management
Knowledge Management refers to the processes and/or tools an organization uses to collect, analyze, store, and disseminate its intellectual capital. This intellectual capital can include training materials, processes, procedures, documents, ideas, skills, experiences, and much more. Besides deployment of appropriate technology and processes by a business enterprise in order to maintain and retain it’s intellectual capital, an effective knowledge management also refers to making optimum use of experience and understanding of human resource in an organization as well as of the information artifacts, such as inherent knowledge
NOTES
based documents (reports) available internally within the organization, and also, the relatedinformation procured from the external resources. A logical extension of this concept is into the entire organization, in the form of Enterprise Knowledge Management (EKM). Among the areas of greatest concern for the modern knowledge worker (from CIO down to the Content Manager), is identifying, collecting, securing and maintaining the information (aka knowledge base) of the organization. Without a process to ensure this system’s usefulness, there are invariably holes which are only found when a user tries to obtain that (missing) information.Let us see the other useful definitions of KM to have a still broader outlook of KM. Arun O. Gupta, Senior Director Business Technology, Pfizer Ltd describes “KM as a practice that addresses the need for information that is required for making effective decisions”. If this information is structured, the same can be translated into knowledge by applying a set of predefined rules. For example, comments on discussion boards can be converted into useful FAQs.
The perception of KM differs from one industry vertical to another. In software service companies, knowledge management can be a highly effective practice as it helps capture knowledge across different skill sets. For instance, information regarding common queries about specific technologies (if captured on the Intranet) can help solve common problems. This, in turn, boosts productivity. As Indian software service organisations employ software professionals in thousands, employee inputs can be extremely useful for organisational growth.
Satish Joshi, Senior VP, Patni Computer Systems Limited says “For us, “KM is a set of processes and tools which give us the ability to leverage and combine the collective abilities of our knowledge workers.”
Simply put, a KM practice should let an organisation provide relevant information to each and every user. As Sunil Kapoor, Head IT, Fortis Healthcare says, “KM is nothing but having customised information tailored to the needs of each user”. As KM practice provides a structured way of capturing knowledge that exists within the organisation, it gives an organisation the ability to improve the productivity and knowledge of its employees by means of knowledge sharing.
“A KM practice that encompasses end-to-end processes owned by a department can go a long way toward boosting productivity,” says M D Agrawal, GM IS Refinery Systems, BPCL.
According to the American Productivity & Quality Center, “KM refers to the strategies and processes of identifying, capturing, and leveraging knowledge to enhance competitiveness”.
NOTES
According to Yogesh Malhota of www.brint.com “KM refers to the critical issues oforganizational adaptation, survival and competence against discontinuous environmental change. Essentially it embodies organizational processes that seek synergistic combination of data and information processing capacity of information technologies, and the creative and innovative capacity of human beings”.
According to Gartner Group, KM is defined as a discipline that promotes an integrated approach to identifying, managing and sharing all of an enterprise’s information assets. These information assets may include databases, documents, policies and procedures, as well as previously unarticulated expertise and experience resident in individual workers.
Gartner defines Knowledge management as an integrated and collaborative approach to the Creation, Capture, Organization, Access and Use of Information Assets.
The Knowledge cycle is depicted in the Figure 1.1 below
The various steps involved are described as follows:
• Knowledge is created. This happens in the heads of people.
• Knowledge is captured. It is put on paper in a report, entered into a computer
system of some kind, or simply remembered.
• Knowledge is organized, where it is classified and modified. The classification can
be the addition of keywords which could be indexed. Modification can add context, background or other things that make it easier to reuse later. The test of this step’s success is to determine how easily people in the organization will be able to access and use the knowledge when they need it.
• “Knowledge is shared and used. When knowledge is shared and used, it’s modified by the resources that use it. This takes us back to knowledge creation.
1.3.2 Objectives of knowledge management
The following are the major objectives of KM 1. Create knowledge repositories
NOTES
b) Structured internal knowledge (reports, marketing materials, etc.)c) Informal internal knowledge (discussion databases of ‘know how’) 2. Improve knowledge access througha) Technical expert referral
b) Expert networks used for staffing based on individual competencies c) Turnkey video conferencing to foster easy access to distributed experts. 3. .Enhance the knowledge environment
a) Change organizational norms and values related to knowledge in order to encourage knowledge use and knowledge sharing
b) Customer’s rating of organisation’s expertise 4. Manage knowledge as an asset
a) Attempt to measure the contribution of knowledge to bottom line success
1.3.3 Motivation for Knowledge Management
Internal and external pressures and rapid inflows of information make effective operation of organizations extremely difficult (see Figure 1.2). The Internet and E-Commerce have generated competitors that are on the other side of the world but only a mouse click away. Employees are moving from organization to organization at alarming rates, taking with them important knowledge of company operations that must be relearned by new employees. The pace of technology, particularly information technology (IT) continues to force management to consider organizational change associated with the implementations of electronic commerce store-fronts, automated inventory procurement and enterprise resource planning (ERP) systems. Changes in government legislation and regulatory practices provide a steady flow of new threats and opportunities. Customers are demanding new products and services that are bundled to their preference. Subsequently, companies are being forced to move faster and at new levels of personalized interaction. Filtering through this barrage of information for relevant data or combinations of information is a formidable undertaking. To address these challenges, organizations must develop management methods that accept information as a valued resource, convert information into organizational knowledge and generate value-added information from that knowledge.
NOTES
Figure 1.2 Internal and external pressures on an organization.
Dealing with these pressures requires methods of managing organization knowledge that are rarely found in today’s companies and institutions. Figure 1.3 shows the major entities that act as sources and sinks of information for organizations. Leading companies are able to filter information in from these entities, build on their organizational knowledge and synthesise valuable information for return. Fundamental to the success of these methods is the realization that information technology does not, on its own, equal knowledge management. Since 1998, books such as “The Information Paradox” by John Thorp have asked serious questions about the role of information systems within organizations, how they are managed and the methods used to measure their benefit. Managing knowledge within an organization involves a composite of people and information technology. We see the ultimate goal for an organization as communicating information and managing knowledge with the same efficiency and effectiveness as an individual.
Figure 1.3 Organizational knowledge environments.
4 Organization Global Opportunities Customer Demands Regulatory Change Technological Change Employee Turn-over Competition Management of Organizational Knowledge Gov’t Reg. Competitors Customers Channels Partners Suppliers Employees Products Services
NOTES
1.3.4. Knowledge Management CycleFor humans the process of transforming data and information into knowledge and then back into value-added information is a cycle that is natural and on going. The following figure depicts this knowledge management cycle as consisting of four fundamental steps that involves the storage, processing and communication of information. We begin the discussion of this cycle as it applies to the individual and move on to discussing the cycle as it applies to small and then large organizations. In each case the methods of storing, processing and communication information are described and followed by a description of the progression through the four steps of the knowledge management cycle.
An individual makes his or her way through the world being inundated with data and information from the environment. To deal with this, an individual uses personal memory as well as notes and paper files for storing information. The individual’s brain processes the information with possibly the aid of a calculator or a small computer. Communication of information is primarily internal from a knowledge management perspective. As individuals we pride ourselves on our ability to learn from our triumphs and defeats through the effective consolidation of knowledge. As the figure depicts, knowledge consolidated at the end of one iteration through the knowledge management cycle provides new information that can be used in yet another iteration.
Small organizations of 2 to 20 persons are able to emulate the knowledge management cycle of an individual with some degree of success. Information and requests received from customers, partners, and the government is stored within individual memories, in documents and in simple database systems. Information processing takes place in individual brains as well as at productive meetings where the strengths and weakness of the individuals are well understood, accepted and utilized. Various small computer systems and possibly a network server are shared by all. Communication is primarily via ad-hoc meetings augmented by telephone, fax and email messages when a person is traveling or at home.
7 Environmental data INFORMATION Storage Processing Communication Knowledge Consolidation Observation and Analysis Testing and Application Theory Generation Problems Opportunities Approach Methods Results Information
NOTES
Knowledge consolidation by each individual is facilitated by a collective effort to ensure that failure does not recur for the same reasons and that success can be repeated as often as possible. Consequently, small organizations are said to be well-oiled, creative and able to move quickly to meet a changing environment with a high degree of synergy where the value derived from a project can often be greater than the sum of the individual efforts.
Larger organizations have a difficult time emulating the knowledge management cycle of an individual. Large companies and institutions receive proposals, queries and other forms of information from a multitude of customers, channels, partners, government and regulatory bodies. Information is stored in various formats and locations that include policy documents, filing cabinets, internal process and product databases as well as external customer and distribution databases, microfiche, audio tape and video tape. Portions of the information in-flow are processed by individual brains only to be confounded by a multitude of meetings in which the persons assigned to various roles change from quarter to quarter. Various computer systems developed over the last ten years process portions of information in silos that have a difficult time talking to one another for technical and political reasons. Communication is achieved via a cornucopia of local area network, Internet, mobile devices. Meetings must be scheduled several weeks in advance for executives and many events must be cancelled and rescheduled due to conflicts. Knowledge gained at the end of a product cycle is often lost and for this reason failure can recur and success is not repeated as often as possible. Subsequently, large organizations are said to be lethargic, lacking creativity and slow to react to meet a changing environment. The chaos that results is largely due to the ineffective management of organizational knowledge.
1.3.5 Domains for Knowledge Management
The diagram (Figure 1.4) is organized in four parts to indicate four technical domains for Knowledge Management. And the tools listed in the four technical domains can be used to help institutions share, distribute, capture and create knowledge better.
NOTES
Figure 1.4 Technical domains of KM
Knowledge Sharing: Group Collaboration Systems (GCS) foster the creation and sharing of knowledge among people working in groups. Improved group coordination and collaboration is enabled through e-mail, teleconferencing, data-conferencing, videoconferencing, groupware, and Internet-based applications. Groupware and Intranets represent the most prevalent examples.
Distribute Knowledge: Office Automation Systems (OAS) helps disseminate and coordinate the flow of information throughout the institutions. An OAS can be any application of information technology that intends to increase the productivity of information workers. Common examples include word processing, desktop publishing, imaging, electronic calendars, and desktop databases.
Capture Knowledge: Artificial Intelligence Systems (AIS) provides institutions and administrators with codified knowledge that can be reused by others in the institution to expand the knowledge base. Examples include expert systems, neural networks, fuzzy logic, and genetic algorithms.
Create Knowledge: Knowledge Work Systems (KWS) support the activities of highly skilled knowledge workers and professionals as they create new knowledge and try to integrate it into the institutions. KWS have special characteristics that support the unique needs of knowledge workers. Examples of knowledge work applications include computer-aided design (CAD) systems and virtual reality (VR) systems for simulation and modeling.
NOTES
1.3.6. Uses of Knowledge Management
The Knowledge Management principles are being used for: • Reducing cycle times
• Reducing overheads
• Boosting revenues by getting products and services to market faster • Improving customer service by streamlining response time
• Empowering employees
• Creating innovative and high quality products
• Creating knowledge-sharing platform for the geographically dispersed teams • Enhancing employee retention rates by recognizing the value of
employees’knowledge and rewarding them for it
• Fostering innovation by encouraging the free flow of ideas
• Streamlining operations and reducing costs by eliminating redundant or unnecessary processes
• Enhancing supply chain management • Enhancing web publishing
• Managing legal, intellectual property • Providing project workspace • Delivering competitive intelligence • Managing customer relationships • Providing training, corporate learning • Capturing and sharing best practices • Fostering cross-departmental effectiveness
KM Viewpoint 1.2
Pfizer India has embarked on two initiatives that will gradually evolve into a KM framework. The first one involves capturing documents and creating a context sensitive repository. The second initiative focuses on converting unstructured data into structured data and warehousing the same. Together, these initiatives will provide Pfizer with key metrics and information that will assist decision making.
NOTES
• Making available increased knowledge content in the development andprovision of products and services • Achieving shorter new product development cycles• Facilitating and managing organizational innovation and learning • Leveraging the expertise of people across the organization
• Increasing network connectivity between employees and external groups with the objective of improving information flow
• Managing the proliferation of data and information in complex business environments and allowing employees to access appropriate information sources
• Managing intellectual capital and intellectual assets in the workforce (such as the expertise and know-how possessed by key individuals) as individuals retire and new workers are hired
Ultimately making the business more adept at change, with the aim of improving competitiveness and profitability. To facilitate this vision, not only does the business have structured data available in its strategic applications, it also has network drives and databases, may be an Intranet, the information on individuals’ hard drives, external sources and, most importantly, the knowledge, skills and experiences of its employees.
1.3.7 Nature of Knowledge Management
1. Knowledge Management is about people. It is directly linked to what people know, and how what they know can support business and organizational objectives. It draws on human competency, intuition, ideas, and motivations. It is not a technology-based concept. Although technology can support a Knowledge Management effort, it shouldn’t begin there.
2. Knowledge Management is orderly and goal-directed. It is inextricably tied to the strategic objectives of the organization. It uses only the information that is the most meaningful, practical, and purposeful.
3. Knowledge Management is ever-changing. There is no such thing as an immutable law in Knowledge Management. Knowledge is constantly tested, updated, revised, and sometimes even”obsoleted”when it is no longer practicable. It is a fluid, ongoing process.
4. Knowledge Management is value-added. It draws upon pooled expertise, relationships, and alliances. Organizations can further the two-way exchange of ideas by bringing in experts from the field to advise or educate managers on recent trends and developments. Forums, councils, and boards can be instrumental in creating common ground and organizational cohesiveness.
5. Knowledge Management is visionary. This vision is expressed in strategic business terms rather than technical terms, and in a manner that generates enthusiasm, buy-in, and motivates managers to work together toward reaching common goals.
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6. Knowledge Management is complementary. It can be integrated with otherorganizational learning initiatives such as Total Quality Management (TQM). It is important for knowledge managers to show interim successes along with progress made on more protracted efforts such as multiyear systems developments infrastructure, or enterprise architecture projects.
1.4 DISCIPLINES OF KNOWLEDGE MANAGEMENT
Knowledge management draws upon a vast number of diverse disciplines such as: • Religion and Philosophy to understand the role and nature of knowledge and the
permission of individuals ‘to think for themselves’
• Psychology to understand the role of knowledge in human behavior. Psychology too is concerned about different kinds of knowing as well as about how and why people learn, forgets, ignore, act, or fail to act. It looks at natural cognitive processes and raises questions of will and motivation that make it impossible to think of knowledge in terms of mechanical transfer from donors to recipients.
• Business Theory & Economics to create strategies, determine priorities, evaluate progress and to understand work, and its organization.
• Cognitive Sciences to understand how best to support knowledge workers’ mental functioning required by their work settings
• Ergonomics to create effective and acceptable work environment
• Information Sciences to build supporting infrastructure and special knowledge-related capabilities
• Knowledge Engineering to elicit and codify knowledge
• Artificial Intelligence to automate routine and assist knowledge-intensive work with reasoning and other high-level functions
• Management Sciences to optimize operations and integrate KM efforts with other enterprise efforts
KM Viewpoint 1.3
When BP (now BP Amoco) decided to analyze, using a knowledge perspective, why they had such differing performance levels in their deep-water drilling rigs, they found wide differences in local knowledge and practices, knowledge that was mostly tacit and undocumented. As a result of their efforts to have this local knowledge more globally practiced, BP achieved very significant savings and subsequently achieved legendary status within knowledge management circles.
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• Social Sciences to provide KM-related motivations, people processes, and culturalenvironments. Sociology has contributed both macro and micro perspectives to knowledge management. The first rigorous attempts to define a postindustrial, knowledge-based society were made by sociologist Daniel Bell and sociologically oriented economist Fritz Machlip, among others. Their documentation of this momentous change—the underlying principles for working with knowledge— crystallized and validated a dawning sense that something quite different was happening globally in the world of work. At the micro level, sociology’s strong research interest in the complex structures of internal networks and communities has obvious relevance to knowledge management. Knowledge management has inherited the concern for social facts. Rather than build from theory, it looks at what people actually do—the circumstances in which they share knowledge or do not share it; the ways they use, change, or ignore what they learn from others. Those social facts guide (or should guide) the development of knowledge management tools and techniques.1.5 EVOLUTION OF KNOWLEDGE MANAGEMENT
The following table provides a bird’s eye view of the important phases of evolution of Knowledge Management:
Table 1. Evolution of Knowledge Management
PERIOD AUTHOUR/ORGANISATION
CONTRIBUTION BRIEF DESCRIPTION OF EVOLUTION
1938 H.G.WELLS
Coined the word ’World Brain’ which depicts an intellectual organization the sum total of collective knowledge
1960 PETER DRUCKER Coined the term ‘knowledge worker’ 1986 Dr.K.WIIG Coined KM concept at UN
1989 McGRAW & HARRISON-BRIGGS
Described ‘knowledge engineering’ as involving information gathering, domain familiarization, analysis & design efforts and accumulated knowledge must be translated into code, tested and refined
1990 SENGE
Focused on the ‘learning organisation’ as one tha can learn from past experiences stored in corporate memory systems
1991 -
1995 NONAKA & TAKEUCHI
Studied how knowledge is produced, used, and diffused within organizations and how much knowledge contributed to the diffusion of innovation
1994 BROWN Described what is ‘Community of Practices’ 1996 STEWART Introduced the concept called ‘Intellectual
Capital’
1997 KAPLAN & NORTON Concept of Balanced Scorecard 2000 -
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1.6 SHORT HISTORY OF KNOWLEDGE MANAGEMENT
In past eras, most employees had to fit into their organizational structures by means of performance standards based upon strictly defined job descriptions. Employment was secure as long as they performed assigned tasks and minded their own business. Out-of-the-box thinking was not likely and knowledge hoarding was the order of the day.
During the era of business process reengineering, cost accountants saw the most knowledgeable workers as an unnecessary expense, a liability to be eliminated through down sizing or early retirement. Many organizations made the strategic mistake of pushing their intellectual assets out the door. Knowledge hoarding was then replaced by a culture of knowledge hiding.
In the past, consultancies practiced knowledge management on the fly. International networks of consultants communicated through computer networks by sharing their own problem-solving expertise with other consultants whose clients had the same problems. But consultants are in the business of selling their own knowledge and had little inclination to share it, especially with their colleagues and peers.
During the 1990s chief executives in the consulting trades realized that the foundation of our economy had been shifting from natural resources toward intellectual assets. They began evaluating how knowledge was being used in their organizations. The biggest shock came with the discovery that 80 percent of corporate knowledge assets were not owned by the companies. They went home every night with the employees. As a result, questions such as how knowledge is acquired, used and delivered became paramount.
These early pioneers knew that their organizations had to adapt quickly. They spent their time rethinking what they were doing, how they were doing it and why. They tore down barriers and ancient processes and replaced them with a systematic approach to knowledge sharing based on the fluid dynamics of a networked economy.
As CEOs evaluated their knowledge management dynamics, it became apparent that the people who drove their enterprises were those who were creating and accumulating knowledge. And as time went on, the value of these people and what they knew was exerting an increasing influence on the success of their organizations. The challenge then became how to create the information, organizational intelligence, business models, communication tools and learning systems around these extremely important people. This goal had to become a central mission, a basic purpose for the existence of these consulting organizations – if they were to be successful.
The lessons learned by these early adopters of knowledge management indicated that though they knew what knowledge was, finding out who has it, reorganizing operations to nourish and manage it, changing the work culture to support it and building knowledge networks around it were the real challenges of the future.
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deliver knowledge enabled organizations to strategically use critical knowledge more easilyWith the advent of networked resources, new ways to codify, share, store and and cheaply. The challenge, however, became how to develop a successful knowledge management model—there were too few examples from which to work. The result was a new knowledge management industry that was born out of the few models that were developed in those early days. Today, a group of leading edge companies like Lotus, Open Text, Documentum and others have developed knowledge management tools that enable corporations to manage and deliver strategic knowledge. It is no longer necessary to reinvent the wheel, and since many of the tools available were created for management consulting firms, it is possible to select and integrate a full-featured Knowledge Management System that includes and integrates key components like document management and collaborative software.1.7 AREAS FOR RESEARCH IN KNOWLEDGE MANAGEMENT
Based on differences between how individuals and organizations manage knowledge, let us see several important areas of research in knowledge management for organizations, particularly large organizations. The following table presents the major research topics by each of the four steps of the knowledge management cycle described in the sub section 1.3.4.
Table 1.2 Areas of research within each step of the knowledge management cycle.
Observation and Analysis
1. Retrieval and filtering of data/information 2. Enabling access to salient environmental data 3. Sharing organizational goals and objectives
Theory Generation
4. Elimination of “silo” processing and reinvention 5. Fostering knowledge creation through small teams 6. Reduction of bureaucracy and formal meetings
Testing and Application
7. Enabling “start to finish” development and deployment
8. Effective measurement of business processes and knowledge assets
9. Management of changing requirements
Knowledge Consolidation
10. Methods of collective reflection
11. Building trust for the dissemination of knowledge 12. Retaining knowledge when employees leave
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Retrieval and filtering of data / information. The rate of data and information in-flow to organizations by way of card-readers, automated telemetry, telephone calls and most notably the Internet is overwhelming. Most company wrestle every day with effective and efficient methods of retrieve data and filtering out the salient information. This is an area where both people skills and technology require improvement. Studies of the relative strengths and weaknesses of systematic approaches to information retrieval and filtering in the workplace would be of benefit. The education of knowledge workers in library science research skills is needed. Intelligent user interfaces that can learn the profile of a user’s interest and filter information based on that profile would greatly facilitate Internet searches. Research into advanced methods of Knowledge Query and Manipulation (KQML) will also facilitate the retrieval of information. Integrated with content management systems and the Internet, these technologies will provide very powerful observation tools.
Enabling access to salient environmental data. Although there is much organizational data that is encoded into electronic form for ease of communications and analysis, there is other important information that is not. For example, in hospitals much of the important information on a patient is recorded with pencil on paper; on the manufacturing floor, important data is communicated verbally; and information surrounding important interactions with customers is rarely communicated beyond the sales staff and their managers. Internet, groupware and portal technologies can be used to assist with these problems, however there is a fundament need for cultural change in most organizations that encourages the capture of salient environmental data. Research is required into methods of cultivating cultural change.
Sharing organizational goals / objectives. Large organizations suffer greatly from a lack of sharing and caring about organization goals. Clear and repeated communication of company objectives to all employees provides an environment in which knowledge can be better managed. Methods of sharing organizational goals and objectives and bringing them in-line with individual goals are important areas of research.
Elimination of “silo” processing and reinvention. Large organizations have traditionally developed “silos” of endeavour because departmental and professional barriers make knowledge management difficult. This leads to competing analysis of environmental data and the generation of tactical business strategies that often conflict when they are executed. The best organizations are composed of “organic” networked teams where knowledge is able to flow freely across disciplines and departmental boundaries. The major problems that must be addressed are dynamic management methods and career development approaches that consider individual and organizational objectives and reward trusting relationships at every opportunity.
Fostering knowledge creation through small teams. Work-teams of small numbers of people that share common goals are highly innovative environments. Having
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members of an organization move between these groups passing along best-practicemethods is very important, yet often disruptive. Sharing knowledge takes time and cancause short-term delays in group performance. Creating an organizational culture that is receptive to personnel movement and knowledge exchange is a challenge. Technologies such as electronic mail, corporate intranets, portals and collaborative software (such as Lotus Notes) can be very helpful in creating and enabling small teams. Research and application of new management methods and technologies is needed.
Reduction of bureaucracy and formal meetings. Moving from four levels of management bureaucracy to delegated authority and responsibility has been one of the most difficult transitions for modern organizations. The traditional hierarchy fosters a climate of presentations, proposals and meetings versus strong analysis and decisive action. A healthy knowledge management environment is one in which people wish to share information for the common good and not one in which they must share information in order to proceed with projects or business plans. This having been said, legal and fiscal responsibility requires a formal chain of command within organizations. Resolving this conflict continues to be an important area of research in business administration. Technologies such as message passing, groupware and document management systems can facilitate a more efficiently and effective movement of “paper-work” within the office and across the globe. Standard protocols and languages, such as the eXtensible Markup Language (XML), for interoperation between systems is an active area of research
Enabling “start to finish” development and deployment. Too often in large organizations, design engineers or business strategists are not involved in the testing of the final product or the implementation of the tactical operations. This can lead to a false sense of accomplishment on the part of the engineer or strategist and a poor opinion of upper management and technical authority on the part of front-line employees. Methods of feedback between designer and user need to be created that ensure better communication of success and failure with a minimum investment of both parties’ time. Solutions can include people-centered approaches such as education of front line workers, practical job shadowing by designer engineers and the involvement of designers, testers and front-line workers from the start of design to implementation and deployment.
Effective measurement of business processes and knowledge assets. Marketing through data mining and customer relationship management is really the first area of business administration outside of finance to widely employ rigorous mathematical methods. This has many management researchers excited about the use of measures and mathematics in other areas. Further work is needed in measuring the quality and value of business processes and intangible knowledge assets. In particular, methods of measuring success due to knowledge creation and knowledge transfer are needed.
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Management of changing requirements. The pressures affecting modernorganizations ensure that change will always occur. Tried and proven methods of managing change within projects and product cycles are needed. Project management research has turned to engineering methodologies that have established methods of change management. Innovative new methods of managing projects, products and services have also been developed that take iterative, incremental approaches that can more easily incorporate change (e.g. the Unified Software Development Process used in Software Engineering).
Methods of collective reflection. An organization unlike an individual, rarely takes the time to reflect on successes and failures. Surprisingly, when an organization does do so, it is often recognized as a hallmark event; a defining moment in the life of the business. Most typically these events take place off-site, in seclusion and happen at best annually and often only at points of crisis. Why? There must be better ways to regularly reflect on successes and failures and share in the consolidation of new knowledge.
Building trust for the dissemination of knowledge. Success factors within most organizations are closely guarded secrets. From an intellectual property perspective this makes a great deal of sense. However, secrets between departments, work-units or project teams within the same organization are counter-productive. Without trust between people there cannot be a productive sharing of information that results in knowledge transfer. The generation of a trusting environment is one that must extend from the top of the organization to the grass roots. Trust building activities such as team social activities, induction programs, job rotation, milestone celebrations, impromptu lunches and face-to-face communications need to be encouraged.
Retaining knowledge when employees leave. The loss of organizational knowledge when an employee leaves is a very serious problem. Methods of retaining knowledge can be divided into proactive and reactive categories. Proactive methods include personnel rotation programs, master/apprentice schemes and recording information from internal experts (such as salesmanship techniques). Reactive methods include exit interviews and aftermath peer discussion sessions. Further research is required to find better methods of retaining organizational knowledge.
1.8. KNOWLEDGE ECONOMY
For countries in the vanguard of the world economy, the balance between knowledge and resources has shifted so far towards the former that knowledge has become perhaps the most important factor determining the standard of living - more than land, tools and labour. Today’s most technologically advanced economies are truly knowledge-based.
For the last two hundred years, neo-classical economics has recognised only two factors of production: labour and capital. Knowledge, productivity, education, and intellectual capital were all regarded as exogenous factors that are, falling outside the system.
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New Growth Theory is based on work by Stanford economist Paul Romer and otherswho have attempted to deal with the causes of long-term growth, something that traditionaleconomic models have had difficulty with. Following from the work of economists such as Joseph Schumpeter, Robert Solow and others, Romer has proposed a change to the neo-classical model by seeing technology (and the knowledge on which it is based) as an intrinsic part of the economic system. Knowledge has become the third factor of production in leading economies.
Technology and knowledge are now the key factors of production. Romer’s theory differs from neo-classical economic theory in several important ways:
• Knowledge is the basic form of capital. Economic growth is driven by the accumulation of knowledge.
• While any given technological breakthrough may seem to be random, Romer considers that new technological developments, rather than having one-off impact, can create technical platforms for further innovations, and that this technical platform effect is a key driver of economic growth.
• Technology can raise the return on investment, which explains why developed countries can sustain growth and why developing economies, even those with unlimited labour and ample capital, cannot attain growth. Traditional economics predicts that there are diminishing returns on investment. New Growth theorists argue that the non-rivalry and technical platform effects of new technology can lead to increasing rather than diminishing returns on technological investment. • Investment can make technology more valuable and vice versa. According to Romer,
the virtuous circle that results can raise a country’s growth rate permanently. This goes against traditional economics.
• Romer argues that earning monopoly rents on discoveries is important in providing an incentive for companies to invest in R&D for technological innovation. Traditional economics sees “perfect competition” as the ideal.
Enhancing human capital is critical for GDP growth. But sustained GDP growth doesn’t just happen. In order to make investments in technology, a country must have sufficient human capital. Human capital is the formal education, training and on-the-job learning embodied in the workforce.
Various observers describe today’s global economy as one in transition to a ‘knowledge economy’, or an ‘information society’. But the rules and practices that determined success in the industrial economy of the 20th century need rewriting in an interconnected world where resources such as know-how are more critical than other economic resources.
Various management writers have for several years highlighted the role of knowledge or intellectual capital in business. The value of high-tech companies such as software and
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biotechnology companies is not in physical assets as measured by accountants, but in theirintangibles such as knowledge and patents. The last few years have a growing recognition by accounting bodies and international agencies that knowledge is a crucial factor of production.
1.8.1 Background of knowledge economy
We are now living in a knowledge economy where the principal economic resource businesses have to offer their customer is knowledge. The nature of work in an organization has changed enormously with the shift from an industrial economy where the focus is production of commercial products to a knowledge economy where the main outcomes are service and expertise. The shift to a knowledge economy has increased the complexity of work activities. Employers have recognized the value of identifying and accessing a diversity of expertise and knowledge from different sources to work on common goals. People increasingly work closely with others to accomplish common goals, particularly if they are working in service areas or are used as sources of expertise by others. The shift to a knowledge economy has also led to increasing concern for building strong interpersonal relationships with others. Many employees spend considerable time interacting with others: collaborating with work colleagues, customers or people in other organizations through face-to-face meetings, online network, emails and many other mechanisms.
1.8.2 What is knowledge economy?
The World Bank Institute offers a formal definition of a knowledge economy as one that creates, disseminates, and uses knowledge to enhance its growth and development. The knowledge economy is often taken to mean only high-technology industries or information and communication technologies (ICTs). It would be more appropriate, however, to use the concept more broadly to cover how any economy harness and uses new and existing knowledge to improve the productivity of agriculture, industry, and services and increase overall welfare.
A knowledge economy uses data as it raw material and transforms it using technology, analysis tools, and human intelligence into knowledge and expertise. Fig. 1.5 illustrates the main phases of this transformation process.
Fig.1.5 Steps in the Knowledge Creation Process
A knowledge-driven economy is one in which the generation and exploitation of knowledge play the predominant part in the creation of wealth. In the industrial era, wealth was created by using machines to replace human labour. Many people associate the
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knowledge economy with high-technology industries such as telecommunications andfinancial services. The term knowledge economy is a relatively new one, commonly used to refer to aspects of the service sector of the economy. This, however, is a restricted view of the term. To a significant extent, the linkages of the operations in the service sector lie in the hardware part. Thus, chips, integrated circuitry, and technology used in biosciences, for instance, are important aspects of knowledge economy. The space occupied by the Information Technology (IT) industry within the content of the term knowledge economy is significantly large, probably due to its being an early starter. However, a certain extent of grayness is associated with the term knowledge economy, primarily because, so far, it has not been adequately defined; nor have its boundaries been drawn with clarity.According to Housel and Bell a knowledge based economy is the one where knowledge is the main source of wealth, growth and employment, with a strong reliance on information technology.
In knowledge economy citizens would be working in service industries rather than in manufacturing or agriculture. In knowledge-based economy there is a need to develop a national focus on innovation, research, education and information communication technologies. Further in the knowledge-based economy the shift in focus is from products to services where the greater recognition of the importance of the knowledge held within an organisation is responsible.
1.8.3 Impact of knowledge in the knowledge economy
1. Unlike capital and labour, knowledge strives to be a public good (or what economists call “non-rivalrous”). Once knowledge is discovered and made public, there is zero marginal cost to sharing it with more users. Secondly, the creator of knowledge finds it hard to prevent others from using it. Instruments such as trade secrets protection and patents, copyright, and trademarks provide the creator with some protection.
2. The implication of the knowledge economy is that there is no alternative way to prosperity than to make learning and knowledge-creation of prime importance. There are different kinds of knowledge. “Tacit knowledge” is knowledge gained from experience, rather than that instilled by formal education and training. In the knowledge economy tacit knowledge is as important as formal, codified, structured and explicit knowledge.
3. According to New Growth economics a country’s capacity to take advantage of the knowledge economy depends on how quickly it can become a “learning economy’. Learning means not only using new technologies to access global knowledge, it also means using them to communicate with other people about innovation. In the “learning economy” individuals, firms, and countries will be able to create wealth in proportion to their capacity to learn and share innovation.
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1.8.4 Characteristics of knowledge economy
The knowledge economy differs from the traditional economy in several key respects:
1. The traditional economy is that of scarcity. The economics of knowledge economy is that of abundance. Knowledge is the resource which unlike other resources will not deplete when used. It can be shared and grow through its application. 2. In the knowledge economy the distances will be meaningless and the world will
be considered as a global village where using appropriate technology virtual organisations, virtual teams and market places are possible in which operations will be faster than in the traditional economy.
3. In the knowledge economy, it is difficult to apply controls in terms of laws, taxes and barriers in the national level as the businesses become global in nature. 4. In the knowledge economy, the knowledge and information leak may be inevitable
where the demand is highest and the barriers are lowest.
5. In the knowledge economy the products which are developed based on knowledge will attract premium price compared to the products with low embedded knowledge or knowledge intensity.
6. Price and value of knowledge depends heavily on context. The same knowledge can have different value to different people at different times.
7. Knowledge when locked into systems or processes has higher inherent value than when it can ‘walk out of the door’ in people’s heads.
8. Human capitals - competencies - are a key component of value in a knowledge-based company, yet few companies report competency levels in annual reports. In contrast, downsizing is often seen as a positive ‘cost cutting’ measure.
These characteristics, so different from those of the physical economy, require new thinking and approaches by policy makers, senior executives and knowledge workers alike. To do so, though, requires leadership and risk taking, against the prevailing and slow changing attitudes and practices of existing institutions and business practice.
1.8.5 Key drivers of knowledge economy (a) The Importance of Intellectual Capital
Intellectual capital is a firm’s source of competitive advantage. To become knowledge driven, companies must learn how to recognise changes in intellectual capital in the worth of their business and ultimately in their balance sheets. A firm’s intellectual capital -employees’ knowledge, brainpower, know-how, and processes, as well as their ability to continuously improve those processes - is a source of competitive advantage. But there is now considerable evidence that the intangible component of the value of high technology and service firms far outweighs the tangible values of its physical assets, such as buildings or equipment. The physical assets of a firm such as Microsoft, for example, are a tiny proportion of its market capitalisation. The difference is its intellectual capital.
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(b) The Importance of ICTICT (Information Communication Technology) releases people’s creative potential and knowledge and are the enablers of change. They do not by themselves create transformations in society. ICT are best regarded as the facilitators of knowledge creation in innovative societies. The new economics looks at ICT not as drivers of change but as tools for releasing the creative potential and knowledge embodied in people.
However, the ICT sector has a powerful multiplier effect in the overall economy compared with manufacturing. A 1995 study of the effect of software producer Microsoft on the local economy revealed that each job at Microsoft created 6.7 new jobs in Washington State, whereas a job at Boeing created 3.8 jobs. Wealth-generation is becoming more closely tied to the capacity to add value using ICT products and services.
(c) The New Economics of Information
The rate of technological change has greatly increased over the past thirty years. Three laws have combined to explain the economics of information. Moore’s Law holds that the maximum processing power of a microchip at a given price doubles roughly every 18 months. In other words, computers become faster, but the price of a given level of computing power halves. Gilder’s Law - the total bandwidth of communication systems will triple every 12 months - describes a similar decline in the unit cost of the net. Metcalfe’s
Law holds that the value of a network is proportional to the square of the number of
nodes. So, as a network grows, the value of being connected to it grows exponentially, while the cost per user remains the same or even reduces.
While Metcalfe’s Law has been applied to the Internet, it is also true of telephone systems. Gordon Moore first formulated Moore’s Law in the early 1970s. There can be no doubt that the cycle of technology development and implementation is accelerating and that we are moving inexorably onward, out of the Industrial Age and into the Information Age.
(d) Globalisation
ICT open up global markets and foster competition. With the advent of information and communication technologies, the vision of perfect competition is becoming a reality. Consumers can now find out the prices offered by all vendors for any product. New markets have opened up, and prices have dropped. When businesses can deliver their products down a phone line anywhere in the world, twenty-four hours a day, the advantage goes to the firm that has the greatest value-addition, the best-known brand, and the lowest “weight’. Software provides the best example: huge added value through computer code, light “weight” so that it can be delivered anywhere at any time.
