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Knowledge Management for the New World of Business
© Copyright, 1998, Yogesh Malhotra, All Rights Reserved
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Citation of updated version of this article: Malhotra, Yogesh. "Deciphering the Knowledge Management Hype," The Journal for Quality & Participation, July/August 1998 (Special issue on Knowledge Management), published by the Association for Quality & Participation.

Knowledge Management caters to the critical issues of organizational adaption, survival and competence in face of increasingly 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.

We are observing increasing hype about the wonders delivered by newest information technologies in an era characterized by knowledge as the critical resource for business activity. With the advent of new technologies, such as datamining, intranets, videoconferencing, and webcasting, several technologists are offering such solutions as a panacea for meeting the business challenges of the knowledge era. Trade press coverage of the 'productivity paradox' has further added to the speed of the information technology (IT) treadmill by suggesting that increasing investments in new information technologies should somehow result in improved business performance. For instance, some recent stories published in the trade press have asserted that certain technologies, such as intranets, have some inherent capability for facilitating organizational transformation initiatives, such as knowledge management.

Interestingly, some technology experts and academic scholars have observed that there is no direct correlation between IT investments and business performance or knowledge management. For instance, Erik Brynjolfsson, a professor at MIT Sloan School, notes that: "The same dollar spent on the same system may give a competitive advantage to one company but only expensive paperweights to another." Hence a key factor for the higher return on the IT dollar is the effective utilization of technology. How industry executives should go about deciphering the mantra of 'effective utilization,' however, remains an illusive issue. This conclusion is supported by the industrywide analyses of IT investments by the technology economist Paul Strassmann. In his recent book The Squandered Computer, he has concluded that there is no relationship between computer expenditures and company performance whatsoever. On a similar note, John Seely Brown, director of the Xerox Parc research center in Palo Alto, California, underscores that in the last 20 years, US industry has invested more than $1 trillion in technology, but has realized little improvement in the efficiency or effectiveness of its knowledge workers. He has attributed this failure to organizations' ignorance of ways in which knowledge workers communicate and operate through the social processes of collaborating, sharing knowledge and building on each others ideas.

Toward A New World Order of Business

The contrast highlighted above may be attributed to a transition of the economy from an era of competitive advantage based on information to one based on knowledge creation. The earlier era was characterized by relatively slow and predictable change that could be deciphered by most formal information systems. During this period, information systems based on programmable recipes for success were able to deliver their promises of efficiency based on optimization for given business contexts. Success stories of IT miracles of this era, such as Mrs. Fields' Cookies, have been chronicled by the Harvard Business School case writers and many others in the academic and trade press. However, as argued by Brian Arthur, Dean of Economics and Population Studies at Stanford and author of Increasing Returns and Path Dependence in the Economy, the new world of knowledge-based industries is distinguished by its emphasis on precognition and adaptation in contrast to the traditional emphasis on optimization based on prediction. He suggests that the new world of knowledge-based business is characterized by "re-everything" involving continuous redefinition of organizational goals, purposes, and its "way of doing things." This new business environment is characterized by radical and discontinuous change which overwhelms the traditional organizational response of predicting and reacting based on pre-programmed heuristics. Instead, it demands anticipatory response from organization members who need to carry out the mandate of a faster cycle of knowledge-creation and action based on the new knowledge.

Knowledge Management in the 'Old' Information Era

In the information era characterized by relatively predictable change, technology gurus, as well as hardware and software providers, have been offering out-of-box solutions that are expected to enable knowledge management. Such off-the-shelf solutions are expected to offer means for storing best practices devised by human experts in information databases which may be later used for crunching out the pre-determined solutions based on pre-defined parameters. For example, a Software Magazine article defined knowledge management in terms of understanding the relationships of data; Identifying and documenting rules for managing data; and assuring that data are accurate and maintain integrity. Similarly a Computerworld article defined knowledge management in terms of mapping knowledge and information resources both on-line and off-line. The convergent and consensus building emphasis of such systems is suited for stable and predictable organizational environments. However such interpretations of knowledge management -- based primarily on rules and procedures embedded in technology -- seem misaligned with the dynamically changing business environment.

Such programmed solutions may be good enough for devising strategies for a game of business that is based on pre-defined rules, conventions and assumptions. However such mechanistic solutions based on the traditional information-processing emphasis of knowledge management are increasingly inadequate in a business world that demands increasing flexibility and resurfacing of existing assumptions. This is the world which requires not playing by the pre-defined rules, but understanding and adapting as the rules of the game, as well as the game itself, keep changing. Examples of such changing rules, conventions and assumptions of business are suggested by the changing paradigms of organizations with the emergence of virtual corporations and business ecosystems.

A Definition of Knowledge Management for the New World

We propose a definition of Knowledge Management that attempts to go beyond the quickfix solutions or unidimensional views offered by many others. This definition is intended to move the thinking of corporate executives towards the strategic, non-linear and systemic view of Knowledge Management reviewed in this article.

"Knowledge Management caters to the critical issues of organizational adaption, survival and competence in face of increasingly 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."

Knowledge Management in the New World of Business

The traditional paradigm of information systems is based on seeking a consensual interpretation of information based on socially dictated norms or the mandate of the company bosses. This has resulted in the confusion between 'knowledge' and 'information'. However, knowledge and information are distinct entities!! While information generated by the computer systems is not a very rich carrier of human interpretation for potential action, 'knowledge' resides in the user's subjective context of action based on that information. Hence, it may not be incorrect to state that knowledge resides in the user and not in the collection of information, a point made two decades ago by West Churchman, the leading thinker on information systems.

Karl Erik Sveiby, the author of The New Organizational Wealth: Managing and Measuring Knowledge-Based Assets, contends that the confusion between `knowledge' and `information' has caused managers to sink billions of dollars in technology ventures that have yielded marginal results. He asserts that the business managers need to realize that unlike information, knowledge is embedded in people... and knowledge creation occurs in the process of social interaction. On a similar note, Ikujiro Nonaka, the renowned Professor of Knowledge, has emphasized that only human beings can take the central role in knowledge creation. He argues that computers are merely tools, however great their information-processing capabilities may be. A very recent Harvard Business Review special issue on Knowledge Management seems to lend credence to this point of view. This issue highlighted the need for constructive conflict in organizations that aspire to be leaders in innovation and creation of new knowledge.

The 'wicked environment' of the new world of business imposes the need for variety and complexity of interpretations of information outputs generated by computer systems. Such variety is necessary for deciphering the multiple world views of the uncertain and unpredictable future. As underscored by the strategy guru Gary Hamel at the recent Academy of Management meeting address, non-linear change imposes upon organizations the need for devising non-linear strategies. Such strategies cannot be 'predicted' based on a static picture of information residing in the company's databases. Rather, such strategies will depend upon developing interpretive flexibility by understanding multiple views of the future. In this perspective, the objective of business strategy is not to indulge in long-term planning of the future. Rather, the emphasis is on understanding the various world views of future using techniques such as scenario-planning. A similar process of strategic planning was pioneered by Arie de Geus, the strategy chief of the multinational Royal Dutch/Shell, as chronicled in his recent book The Living Company.

Lessons for Business & Technology Executives

So what can executives do to realign their focus from the old world of 'information management' to the new paradigm of 'knowledge management' discussed here? A condensed checklist of implementation measures for business and technology managers is given in Table 1.

Table 1. Implementation Measures for Facilitating Knowledge Management

  • Instead of the traditional emphasis on controlling the people and their behaviors by setting up pre-defined goals and procedures, they would need to view the organization as a human community capable of providing diverse meanings to information outputs generated by the technological systems.
  • De-emphasize the adherence to the company view of 'how things are done here' and 'best practices' so that such ways and practices are continuously assessed from multiple perspectives for their alignment with the dynamically changing external environment.
  • Invest in multiple and diverse interpretations to enable constructive conflict mode of inquiry and, thus, lessen oversimplification of issues or premature decision closure.
  • Encourage greater proactive involvement of human imagination and creativity to facilitate greater internal diversity to match the variety and complexity of the wicked environment.
  • Give more explicit recognition to tacit knowledge and related human aspects, such as ideals, values, or emotions, for developing a richer conceptualization of knowledge management
  • Implement new, flexible technologies and systems that support and enable communities of practice, informal and semi-informal networks of internal employees and external individuals based on shared concerns and interests.
  • Make the organizational information base accessible to organization members who are closer to the action while simultaneously ensuring that they have the skills and authority to execute decisive responses to changing conditions.

Brook Manville, Director of Knowledge Management at McKinsey, views the implementation of these issues in terms of the shift from the traditional emphasis on transaction processing, integrated logistics and workflows to systems that support competencies for communications building, people networks, and on-the-job learning. He distinguishes between the three architectures needed for enabling such competencies:

Manville observes that technology will continue to yield disappointing results until IS managers and business executives realize that IT must provide a way to form communities, not simply provide communications.

In the final analysis, managers need to develop a greater appreciation for their intangible human assets captive in the minds and experiences of their knowledge workers, because without these assets, the companies are simply not equipped with a vision to foresee or to imagine the future while being faced with a fog of unknowingness. As noted by Strassmann, elevating computerization to the level of a magic bullet may lead to the diminishing of what matters the most in any enterprise: educated, committed, and imaginative individuals working for organizations that place greater emphasis on people than on technologies.

A Toolbox for Knowledge Management Initiatives

Any article on Knowledge Management would not be complete without providing leads for continuous self-learning on issues discussed in the article. Here is a short checklist of books, magazines and web sites that business and technology managers can utilize to get up to speed on the `new' paradigm of Knowledge Management.

Table 2. A Toolbox for Knowledge Management Initiatives

Illustrative Books on the New Paradigm of Knowledge Management

  • De Geus, Arie. The Living Company, Boston, MA, Harvard Business School Press, 1997.
  • Leonard-Barton, Dorothy. Wellsprings of Knowledge: Building and Sustaining the Sources of Innovation, Boston, MA, Harvard Business School Press, 1995.
  • Nonaka, Ikujiro & Takeuchi, Hirotaka. The Knowledge-Creating Company, Oxford University Press, New York, NY, 1995.
  • Stewart, Thomas A. Intellectual Capital: The New Wealth of Organizations, Currency/Doubleday, New York, NY, 1997.
  • Sveiby, Karl Erik. The New Organizational Wealth: Managing and Measuring Knowledge-Based Assets, Berrett-Koehler, San Francisco, CA, 1997.

Illustrative Periodical Publications on the New Paradigm

  • Fortune: Knowledge Management column by Tom Stewart
  • CIO: Knowledge Management column by Tom Davenport
  • Wall Street Journal: Friday Front Lines column by Tom Petzinger
  • Harvard Business Review: Special Issue: Knowledge Management Jul-Aug `97
  • Long Range Planning: Special Issue on Intellectual Capital, June 1997
  • Forbes ASAP: Special Issue on Intellectual Capital, April 7, 1997
  • Knowledge Inc.: Monthly Executive Newsletter on IT and Knowledge Strategy

Illustrative Web Sites and On-line Discussion Forums



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