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Show me the money! The universal drivers of Knowledge Management value

 Today’s blog aims to look at the universal drivers for KM in organisations. I argue that one of the reasons that KM field is laden with dissatisfaction is that organisations have lost sight of the drivers for their KM value proposition – this will be furthered in a case study paper to be relesased in the next 2 weeks.

The following diagram sums up what I’m about to talk about – This has been constructed from sources such as the OECD and Diakoulakis and is being published as part of a journal article. The references are available – just email me – but please do not use without permission.

The drivers for organiational learning and knowledge

Taking the ontological definition of knowledge, I set this out in an earlier blog, forward it seems necessary to discuss its application as a resource. Its economic importance is demonstrated by theorists and practitioners, such as Ulrick, Dicken and the Deputy Secretary General of the OECD (Organisation for Economic Cooperation and Development), who states that competitive advantage is grounded in the ability of an organisation to be more efficient and effective than its competitors; knowledge being identified as something that needs to be harnessed in order to exploit the uniqueness of the organisation. Drucker and van den Hooff and de Ridder amongst others expand on this when they declare knowledge to be a critical resource, the management of which is seen as one of the biggest challenges for modern organisations.

This approach places knowledge within what is seen as the Resource Based View of the organisation. The Resource Based View observes ‘costly to copy’ resources as a fundamental source of competitive advantage. In this view competitive advantage is derived from the unique knowledge and skills held by the organisation, which are informed by its human capital. This is widely supported by theorists and practitioners who posit that in the modern organisation value is determined more by its intellectual than physical assets, even though this can vary according to sector. The Resource Based View has been evolved in response to the demands of the knowledge economy to include the Knowledge Based View, where knowledge is seen as the primary value creation tool for organisations, though this will be dependent on sector. This specific view of knowledge as the key resource has been disputed by some theorists, who observe the reasoning to be a ‘tenuous assumption’ (Eisendhart & Santos, p. 140). These same authors expose another position, apparently emanating from a single aspect of research, claiming that knowledge is not in fact a resource, but is a process of ongoing social construction. This position does not appear to be widely subscribed to in KM literature and could be diffused through the model at the start of this blog, where Social Capital informs Intellectual Capital, which itself consists of knowledge resources.

Knowledge is seen as a unique strategic resource in that it increases in value with use, directing the need to manage human capital and technologies to develop competitive advantage. It is linked to the intangible human and social assets of an organisation. The value of intangible assets has dramatically increased over the last 80 years, rising from a 30% representation of company valuation in 1929 to recent times where companies, such as Google and Microsoft, are declaring as much as 90%. Call in his research confirms this stating that intellectual capital accounts ‘for more than 78% of the S&P [Standard & Poor’s] 500’ (p. 19). Others in an analysis of the United States stock market performance of 79 companies across service, manufacturing and financial sectors, between 1998 and 2003, suggest that the mere announcement of a strategy to manage knowledge resources can have an impact on market value.

This situates learning and knowledge in terms of what the OECD view as the four pillars of the knowledge economy: Innovation, as a critical factor of competitive advantage; New Technologies, linking technology progress to growth in productivity; Human Capital, which is seen as essential to harness the benefits of the first two pillars; Enterprise Dynamics, or adaptive capacity, the ability to flex according to evolving consumer needs.

Human Capital as a catalytic driver is supported by Nonaka & Takeuchi, who observe the socialisation of human resources as the key to developing tacit knowledge resources. This is further explored by Gherardi who states that knowing is demonstrated in practice where people are ‘able to participate with the requisite competence in the complex web of relationships among people, material artefacts and activities’ (p. 118). Clark goes on to state that a perpetual state of development is required to enhance an organisation’s adaptive capacity, ‘in dynamic environments highly developed learning is necessary in order to keep knowledge current; an organisation’s learning capability must keep pace with the changes in the competitive environment’ (p. 192-3). This concept of an ‘organisation’s learning capability’ or Organisational Learning is linked to adaptive capacity and will be discussed in a later blog.

Some suggest that the measurement of knowledge value is difficult as it is specific to time, context and the perception as to what constitutes a knowledge asset. For some organisations they are tangible, through patents and trademarks. For others they are more discrete, being deposited in people, processes, culture and structure. Discrete knowledge assets are supported by Chen&Huang who suggest a chain relationship exists between organisational value, social capital, socialisation, process and culture. Leonard postulates that the assessment of knowledge resources takes into account their existence, but often overlooks the management of those resources, the influence of which could impact their future viability and value. Donkin posits that Human intellect and character are difficult to measure, both individually and socially, hindering many organisations from ascertaining the true value of their workers. Goodyear & Zenios warn that knowledge can create negative value, for if it is ill founded it can have catastrophic implications, such as bankruptcy or litigation against directors.

This clearly signposts the value of knowledge as a resource situated within the Resource Based View of the organisation and driven by the needs of the Knowledge Econom.   The model at the beginning has been designed to clearly signpost the drivers for KM interventions within organisations.  If we can begin to ‘sell’ the true value then perhaps we can start to deliver better solutions. 

If the enlightenment of value only stopped there…does the locus of value lie in the individual or the collective?  What do you think?

That’s a question for another blog…

[Just another day and another point of view… It’s free, so take it for what it’s worth]

2 comments on “Show me the money! The universal drivers of Knowledge Management value

  1. Adrian Walker
    May 23, 2010

    In connection with KM Innovation and New Technology, the following may be of interest– Social Media for Knowledge Acquisition and Question Answering in Executable English.

    This starts from the observation that data by itself is necessary, but not enough, for many practical uses of an intranet or the Web.

    What’s also needed is knowledge about how to use the data to answer an ever increasing number of questions — such as, “How much could the US save through energy independence?”.

    There’s emerging technology that can leverage social networking for the significant task of acquiring and curating the necessary knowledge — in the form of Executable English.

    You can Google “Executable English” to find this.

    The technology underlies a Web site that works as a kind of Wiki, for collaborative content in open vocabulary, executable English (and other languages).

    So, imagine government and other web sites being able to answer an open ended collection of English questions, and also explaining the answers in English. Imagine government folks and citizens socially networking, Wikipedia-style, to continually expand the range of questions that can be answered.

  2. Pingback: Insights to organisational Knowledge Management – Testing a new general KM tool « Theknowledgecore's Blog

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This entry was posted on May 22, 2010 by in Organisational Development.
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