Formulating A Knowledge Management Strategy Business Essay

Introduction

Throughout the world the value of knowledge for the modern enterprise is increasingly being recognised, and more and more enterprises are explicitly attempting to manage this important asset. To be successful in the management of knowledge as an asset, it is of fundamental importance to recognise that knowledge assets, just as any other asset of the enterprise, should be managed in the context of the overall business. The focus is therefore not on knowledge per se, but rather on managing the business to include a knowledge perspective. This is achieved by recognising that knowledge is a valuable asset that should be managed explicitly in an enterprise.

As every business has to operate in an increasingly competitive and dynamic environment, business managers should base all decisions on their competitive standing in the world economy and the competitiveness of their knowledge competencies. The ability of a company to mobilise and exploit its intangible and invisible assets has become far more important than investing and managing physical, tangible assets. All employees must contribute value by what they know and by the information and knowledge they can provide. Investing in, managing, and exploiting the knowledge of employees is of the essence in the success of companies in the knowledge economy.

Knowledge enterprises have been characterised as enterprises in which the key asset is knowledge. Their competitive advantage comes from having and effectively using knowledge. Knowledge management is still in its early stages and there are many views of what exactly knowledge management entails. Judging by the high rate of knowledge management project failures, this presents a significant challenge in companies where knowledge management is being implemented. The knowledge management process ensures that the enterprise’s knowledge processes are performed as effectively and efficiently as possible. It is therefore responsible for identifying these knowledge processes and implementing measures that will facilitate their effective and efficient execution. Knowledge processes associated with both tacit and explicit knowledge have to be managed. This means that knowledge management in the enterprise must address not only well-defined processes such as those supported by information technology, but also the knowledge processes taking place in and between individuals, such as knowledge sharing and knowledge creation.

In this chapter, the management of knowledge for competitive advantage in a life-insurance company, whose core product is knowledge itself, is discussed. It examines how knowledge management affects the competitive nature of the enterprise and how the enterprise can use knowledge management to build long-term competitive advantages. Traditionally many companies have taken an ad hoc approach to managing knowledge, resulting in work duplication, inconsistent work practices and loss of important organisational knowledge when employees retire or leave the company10. The chapter presents a systematic approach that can be followed in order to improve the business value of the knowledge assets of an enterprise.

DEFINITION OF KNOWLEDGE MANAGEMENT

Knowledge management is the process of identifying, organising and managing knowledge resources, including information, learning capacity and other resources1. Bateman and Snell3 define knowledge management as practices to discover and harness the intellectual resources of an enterprise embodied by the individuals employed by the enterprise. The aim of such a knowledge management definition is to find, unlock, share and capitalise on the expertise and skills of employees. The creative and innovative use of knowledge workers is also emphasised by BRINT.com4 through the definition of knowledge management as a set of organisational processes that strive to achieve synergy between information systems and the nature of workers to innovate. The synergy between systems and individuals requires knowledge management to be a means of creating an environment rich in knowledge in order to provide knowledge-sharing interactions2. Knowledge resides in the minds of people and therefore knowledge management is the practice of supporting individuals to share and utilise the knowledge they have. An individual’s knowledge is of no value to anyone else if it is not shared or turned into some kind of product or service. Gilchrist12 expands on the notion of synergy, defining knowledge management as “the end-to-end continuous process that describes the systematic creation, acquisition, integration, distribution, application and archiving of knowledge to drive behavior (sic) and actions which support organizational objectives and mission accomplishment”. Knowledge management is thus seen as a process or strategy to manage knowledge in enterprises.

Purpose of KNOWLEDGE MANAGEMENT

The question may be posed why knowledge management and its contribution to the competitive position of enterprises are regarded as important. There are a number of reasons that collectively reflect the state of present-day knowledge management and the importance thereof13, namely:

Knowledge has become a primary factor of production supporting the traditional factors of labour, land and capital.

The delivery of services has become a major value driver.

Knowledge is a networked activity and thus utilises the efforts of many and is also able to capitalise on the collaborative effort of the participants.

The digitisation of knowledge has enhanced its distribution, storage and transfer.

Knowledge has the ability to cope with a dynamic environment and encapsulate innovation and technology in assisting it in the process.

Knowledge management’s overall purpose is to maximise the enterprise’s knowledge-related effectiveness and renew knowledge constantly to secure sustained viability and profitability. In enterprises that appreciate the importance of knowledge management, the organisational responsibilities of staff are not focused on the narrow confines of traditional job descriptions. The aim of knowledge management is for enterprises to become more competitive through the capacities of their people to be more flexible and innovative and to provide the enterprise with the ability to identify, capture and leverage the internal knowledge of individuals10. This internal knowledge should be combined with the knowledge from a variety of external sources in order to enhance the ability of all employees, to create and share knowledge across the enterprise, to provide excellent client services and to compete in an increasingly aggressive environment.

Enterprises that understand – or at least where their senior management understands – the importance of knowledge management have the characteristics of learning enterprises that manage knowledge for business success. To develop a learning culture requires the support of senior management and especially the chief executive officer. Knowledge management can only be successful if the corporate culture facilitates and encourages the sharing of ideas and knowledge. It is critical to have a culture of knowledge sharing. In such a culture, free-flowing conversation, open dialogue across organisational boundaries, team- and network-building are important mechanisms for creating high levels of innovation and learning. Knowledge should not be managed in an isolated manner. It should be integrated into the other management activities in the enterprise and linked to the business strategy.

Business strategy and KNOWLEDGE MANAGEMENT

It is often said that strategy can be viewed as that which the enterprise must excel at to ensure its survival in a competitive environment. The linking between knowledge management and strategy is viewed by many as the crux for successful management in any enterprise. Thus Nonaka and Takeuchi19 state that “The most crucial element of corporate strategy is to conceptualize a vision about what kind of knowledge should be developed and to operationalize it into a management system for implementation”. This is then further synthesised to the level of “organizational intention”, according to Nonaka & Takeuchi19, employing the intention as a norm for evaluating the value of knowledge in terms of the enterprise’s requirements.

The role of knowledge management in the strategy formulation process appears to have evolved over time to its present status rather than being the result of a direct and conscious effort by management to integrate it as a functional input into the process23. A similar view is that of Zack27, who reflects that during his research among 25 firms the most important element for guiding knowledge management in the enterprise is its strategic orientation, planning and formulation. He postulates that an enterprise’s strategy assists in identifying the knowledge management issues which assist and support the enterprise’s competitive position and thus shareholder value. Yet, according to Zack27, this link between knowledge management and strategy is widely ignored in practice. This in itself plays a major role in the acceptance of the role of knowledge management at strategic level by senior management.

Davenport and Prusak8 state that for most knowledge enterprises it is of critical importance to establish a link between knowledge management and the business strategy. They propose two approaches to this requirement:

Make knowledge the product of the enterprise by redefining existing products and services on the basis of knowledge assets or augmenting their application with knowledge, and/or

Implement a business strategy with an integrated knowledge management programme ensuring that the key business drivers are supported.

Davenport and Prusak8 do, however, express their concern that while the linking of strategy and knowledge management is critical, business in general has not really achieved this. The enterprises that implement this approach are those that are in the business of selling knowledge, e.g. consulting houses, software developers and similar undertakings. In other business sectors there is a dearth of examples – they do acknowledge that there are knowledge management initiatives that do bring about a measure of efficiencies, but the real long term sustainable quantum improvement results have just not been achieved yet.

It needs to be accepted that the senior management of an enterprise exerts wide influence on its strategic behaviour and thus the performance of the enterprise15. This influence is exerted via senior management’s view of the enterprise environment and their perception of the capacities and capabilities of the enterprise. Before formulating a knowledge management strategy, it is important to establish the importance of knowledge management in the overall objective of the enterprise. One should establish how strongly it features in the enterprise’s mission statement and business plan18. Depending on the outcome of the analysis of the enterprise’s current position with regard to knowledge management orientation, a strategy should be formulated to address opportunities and threats. The knowledge management strategy results from the knowledge worker’s awareness of, and responses to, trends in the marketplace. The knowledge management strategy is essentially a matrix that depicts knowledge management as a set of processes, which are defined through the application of the management functions to each of the organisational knowledge processes. In addition to defining a complete set of knowledge management processes, the strategy also addresses the link between knowledge management practice and business strategy.

survey on KNOWLEDGE MANAGEMENT activities at A life-insurance company

The purpose of the empirical survey was to investigate the current situation with regard to knowledge management activities in a life-insurance company in South Africa and to determine the relationship between the knowledge management activities and the business strategy of the enterprise. A case study of the company was conducted to determine the extent to which the enterprise utilises knowledge management practices, particularly knowledge sharing and collaboration.

Methodology

According to Eisenhardt11 a case study is “a research strategy which focuses on understanding the dynamics present within single settings”. A case study methodology is normally adopted when a holistic and an in-depth investigation is needed. Leonard-Baron in Voss, Tsikriktis and Frohlich24 regard a case study as “a history of a past or current phenomenon, drawn from multiple sources of evidence. It can include data from direct observation and systematic interviewing as well as from public and private archives. In fact, any fact relevant to the stream of events describing the phenomenon is a potential datum in a case study, since context is important.”

Data analysis in a case study consists of examining, categorising, tabulating, or otherwise recombining the evidence to address the initial propositions of a study26. The survey methodology consisted of questionnaires, which were distributed to the sample group. The questionnaire was divided into four sections. Section A focused on biographical data and Sections B, C and D on applications of knowledge management and knowledge sharing in the enterprise. A sample of 847 employees was randomly drawn by computer from the enterprise’s employee database. The questionnaire was developed in a Uniform Resource Locator (URL) format by the Statistical Consultation Services (Statcon) at the University of Johannesburg. The questionnaire was distributed via e-mail, including the URL link, and accompanied by a covering letter to the 847 employees. The respondents had to submit the completed questionnaire directly via the URL link to Statcon for statistical analysis of the data. The data were put into spreadsheets, with statistical graphs for a visual representation of the results. Of the sample of 847 employees, 346 respondents (40.85%) returned completed questionnaires. The data from the questionnaires were processed by Statcon, which used the Statistical Package for Social Sciences software for the input, management and statistical analysis of the data that were collected. These were then put into spreadsheets with statistical graphics for a visual presentation of the results.

Findings

Biographical data

The majority of respondents (39.4%) are older than 30 years and younger than 39 years. More than 50% of the employees have been employed at the enterprise for more than five years. Most respondents (46.3%) hold a degree and 27.2% of the respondents are in possession of a post-graduate degree, whereas only 22.3% of the respondents’ highest qualification is a post-matriculation one. The above results support the findings of Wagner25 and Stewart22 that employees in the knowledge economy should be highly qualified. With regard to job levels employed, 3.5% of the respondents are in the top structure of the enterprise, whereas 13% are on senior management level, 26.5% on middle management level, 15.9% on junior management level and 41% in administrative positions.

Defining knowledge management

Since knowledge management is a fairly new concept in the enterprise, respondents were asked whether they agree with two knowledge management definitions considering their present work situation (see Table 1).

Definition

Strongly disagree

Disagree

Neutral

Agree

Strongly agree

Total

Knowledge management encompasses all activities required to benefit from the enterprise’s knowledge assets in support of the enterprise’s business and operations.

1.6% (5)

3.1% (10)

27.7% (88)

52.2% (166)

15.4% (49)

100.0% (318)

Knowledge management is bringing the right knowledge, in the right quantity, to the right place at the right time.

0.9% (3)

5.9% (19)

21.1% (68)

48.4% (156)

23.6% (76)

100.0% (322)

Table 1: Defining knowledge management

According to Table 1, respondents understood the importance of knowledge management to the business and believed that the managing of knowledge is very important to the success of the enterprise. According to Call6 disagreement on what knowledge management entails leads to unsuccessful knowledge management projects and Ndlela and Du Toit18 emphasise that people are the key to the implementation of a knowledge management strategy. From a knowledge management strategy initiative the overall high acceptance of the two definitions should facilitate the process of developing and establishing such a strategy in the enterprise. Special notice should be taken of respondents’ positive attitude to the potential applications of knowledge management in the company.

Knowledge culture

Top management can maintain an organisational culture in order to help facilitate knowledge transfer in an enterprise and respondents were asked whether they are encouraged to share knowledge, to implement their own ideas and whether they are open to change (see Table 2). Singh20 found that certain leadership styles had a significant relationship to the knowledge management of an enterprise. Bryant5 and Crawford7 also stated there was an apparent relationship between transformational leadership and knowledge management.

Not at all

Very little

Somewhat

Great extent

Very great extent

Total

There is an organisational culture which encourages the sharing of knowledge

1.9% (6)

15.3% (47)

20.5% (63)

51.9% (160)

10.4% (32)

100.0% (308)

I am encouraged to implement my own ideas.

6% (2)

8.8% (27)

21.4% (66)

59.4% (183)

9.7% (30)

100.0% (308)

I am open to change.

1.0% (3)

1.0% (3)

65% (20)

63.1% (195)

28.5% (88)

100.0% (309)

Table 2: Situation with regard to a knowledge culture.

According to Figure 1 the ability to utilise knowledge management practices is evident of a strong knowledge management culture, which includes the elements that constitute a learning enterprise. Knowledge management practices are applied in the enterprise and 62.3% of the respondents agreed that the enterprise has a knowledge management culture. This finding supports the findings of Mostert and Snyman17 and Kok14 that top management has an impact on knowledge management practices in an enterprise. According to Figure 1 senior management supports knowledge management activities in terms of encouraging employees to be open to change and to implement their own ideas in the enterprise.

Figure 1: Knowledge culture

Knowledge sharing

It is clear from Figure 2 that knowledge sharing is the most visible knowledge management practice and special notice should be taken of the employees’ positive attitude to knowledge sharing. Respondents indicated that they share knowledge mainly via on-the-job observations and brainstorming. A concern is knowledge sharing via Communities of Practice. It could be because employees are unfamiliar with the concept, use or benefits of a Community of Practice. This is an aspect that needs attention when developing a knowledge management strategy.

Figure 2: Knowledge sharing

Respondents were also asked whether they use IT to share knowledge (Table 3).

Not at all

Very little

Somewhat

Great extent

Very great extent

Total

E-mail

0% (0)

0% (0)

2.1% (6)

26.7% (76)

71.2% (203)

100.0% (285)

Intranet

3.5% (10)

9.9% (28)

29.6% (84)

35.6% (101)

21.5% (61)

100.0% (284)

Database systems (information repositories)

2.5% (7)

11.6% (33)

28.9% (82)

35.2% (100)

21.8% (62)

100.0% (284)

Document management systems

5.7% (16)

19.4% (55)

30.0% (85)

35.2% (90)

13.1% (37)

100.0% (283)

Chat rooms

24.6% (70)

29.5% (84)

28.1% (80)

11.2% (32)

6.7% (19)

100.0% (285)

Table 3: Use of IT to share knowledge

With regard to the current use of IT to share knowledge in the company, 71.2% of the respondents use e-mail to a very great extent. Only 57.1% of respondents indicated that they use intranets to share knowledge to a great extent. This could indicate a lack of expertise databases available or a lack of company expertise. The relatively high percentage (19.4%) of respondents indicating that they use document management systems ‘very little’ might indicate a lack of knowledge or awareness of these systems, or it could be an indication that some of these systems are not used in the company. Information systems are enablers to manage knowledge and it is important that the enterprise sees information systems from a knowledge management perspective in order to realise their full potential18.

The overall analysis of the formal and informal channels of knowledge sharing indicates that the enterprise is doing well in knowledge sharing. The cross-tabulation of knowledge sharing at management level (Figure 3) indicates a disproportionate response value in respect of knowledge sharing at executive and senior management level and knowledge sharing at middle management and junior management level. This is a cause of concern. Middle managers are the future leaders in the enterprise and the transfer of their tacit knowledge is essential for a knowledge management culture in the enterprise. Specific interventions will need to be established to encourage knowledge sharing at middle and junior management levels. Creating a knowledge-sharing culture in the enterprise requires strong leadership and the attitude of the executive and senior management to sharing their knowledge is encouraging.

Figure 3: Management level and knowledge sharing

From the findings of the empirical survey it can be concluded that the respondents had different interpretations of what knowledge management entails. There was also a clear understanding of the importance of knowledge management and acknowledgement that it could be a source of sustainable competitive advantage. The findings indicate that people are the key to the implementation of the knowledge management strategy.

Recommendations

Employees and business leaders of the life-insurance company are aware of the importance of knowledge management. The empirical results show that without formal implementation of a knowledge management strategy, knowledge-sharing processes are not practised to their full potential (especially on middle management and junior management levels), even in an existing learning culture. Executive management should be ambassadors of knowledge management and should encourage all employees to share their knowledge. To serve the rapid changes occurring in the financial industry and assist the enterprise in becoming a true learning organisation, the enterprise should provide in-depth understanding of knowledge management to its staff to help facilitate managing knowledge in practice and document any best possible practice. In view of the findings certain recommendations were made to the life-insurance company. All knowledge-based enterprises strive to achieve competitive advantage within the marketplace. However, the life-insurance company should adapt itself to the people who work for it, the environment in which it is located, and the markets it is trying to serve. This combination of business needs and personal needs of all employees is a delicate balance necessary to achieve optimal utilisation of all resources. The company could follow the following steps to implement the knowledge management strategy:

Steps to formulate a knowledge management strategy

Because of the relative novelty of knowledge management to most enterprises, it is necessary first of all to gain conceptual understanding of what knowledge management is, its relationship with other management activities of the enterprise and its importance to the enterprise. In an enterprise, steps should be taken to create new knowledge assets, improve the value of the existing knowledge assets and maximise the value derived from utilisation. The links between the knowledge assets and the process of managing these assets are the steps taken by management and their effect on the status of the assets. Knowledge plays a crucial role in the competitive nature of enterprises and hence constitutes a critical component of enterprise strategy. This then implies that the enterprise needs to ensure that it applies all that it knows and considers relevant to its strategic planning process, culminating in an internal and external gap analysis. In this process cognisance needs to be taken of what the enterprise knows, needs to know, what its competitors know and what the learning capabilities of the enterprise and those of its competitors are27.

Many knowledge management frameworks are available, for example the Skandia-Navigator, Wiig’s framework and Hedlund and Nonaka’s framework. However, it is the opinion of the authors that it is difficult to sell these frameworks to senior management. This opinion is confirmed by Mostert16, who states that formal knowledge management is still in a process of evolution and that frameworks are of little benefit unless they are usable by people in enterprises. Senior management understands commonly accepted management theory and a knowledge management strategy based on theory relating to a SWOT analysis has proved itself as a good starting point therefore, and other efforts can be leveraged from its success. A knowledge management strategy can be seen as a long-term plan aimed at managing knowledge for competitive advantage in an enterprise. The strategy involves the following four steps:

External analysis

External analysis involves an examination of the relevant external elements of the enterprise. The analysis should be purposeful, focusing upon the identification of threats, opportunities, strategic questions and strategic choices. A strategic question stimulated by any external analysis component can generate a knowledge need area, a strategically important area for which there is likely to be a continuing need for information. A knowledge asset is a key success factor that is needed to compete successfully. Successful enterprises are normally strong in several key success factors and not weak in any.

Opportunities in the external environment that can be exploited using a knowledge management approach should be identified, as well as threats (in terms of knowledge acquisition) in the strategies of competitors that could affect the competitive position of the enterprise. Ways to counter these threats should be developed. External analysis is important from a knowledge management point of view, since the knowledge management strategy must take cognisance of the competitors’ actions and knowledge management strengths and weaknesses. When analysing the external environment, the following questions can be asked:

What opportunities does our current strategy present that can be exploited using a knowledge management approach?

What knowledge management opportunities does the external environment offer that we can exploit in our enterprise?

How can we help the enterprise through knowledge management with its opportunities (time to market, improved design, differentiation)?

Are our competitors exploiting a specific knowledge management strategy? If not, can we use knowledge management to gain a specific strategic advantage?

What threats are present in our competitors’ strategies in terms of knowledge acquisition?

Are there any general knowledge management threats that could affect our competitive position?

How can we counter these threats?

Can knowledge-based actions negate a business threat by:

Acquiring a knowledge asset?

Sharing knowledge?

Changing strategic posture?

Negating a competitor’s strength?

Self-analysis

Self-analysis aims to provide a detailed understanding of strategically important knowledge assets and areas of the enterprise. It is important to determine what the strengths and weaknesses of the enterprise are in terms of:

Knowledge assets

Enablers (processes, infrastructure, people, technology).

Employees in enterprises have specific knowledge that enables them to pursue options that achieve competitive advantages for both the enterprise and employees and the know-how and experience inherent in the enterprise’s memory bank. Intangibles, such as sustained innovation, in-depth understanding of customer needs and the strategic utilisation of an enterprise’s intellectual capital, are critical. Core business processes should be designed to support the strategic direction of knowledge management. The objectives of the enterprise should direct all the knowledge management activities of the enterprise. Questions that managers might consider as they identify an enterprise’s key internal factors as strengths or weaknesses and as a basis for the enterprise’s knowledge management strategy are the following:

What are the enterprise’s strengths and weaknesses in terms of:

Knowledge assets?

Enablers?

How can the enterprise exploit the strengths and negate the weaknesses (know the market needs, what other know-how and skills should be developed)?

How can the enterprise strengthen strengths and counteract weaknesses through knowledge management (new assets, improved asset utilisation)?

How can knowledge management support the strengths?

How can knowledge management strengths help develop business strategy?

Strategy formulation

The purpose of the external analyses and self-analysis is two-fold: to help generate strategic alternatives and to provide criteria to help in selecting among them. The next step is to formulate a knowledge management strategy. A knowledge management strategy results from the managers’ awareness of and responses to virtually imperceptible trends in the marketplace. The formulation of a knowledge management strategy depends on the ability of the enterprise’s leadership to change its culture. Enterprises need to create opportunities for tacit knowledge to be made explicit9. As stated in a previous section, the knowledge management strategy should be aligned to the business strategy and support core business processes and key strategic decisions21.

In formulating a knowledge management strategy, the following questions can be asked18:

How can knowledge management contribute to the attainment of the functional and eventually strategic goals of the enterprise?

Is knowledge on par with other enterprise resources, such as capital, natural resources, labour and entrepreneurship?

Implementation and evaluation

The scope of knowledge management can be vast and complex, as it spans all organisational functions. When implementing a knowledge management strategy, the prioritisation of activities, as well as their integration with other business processes, should be an important management focus area. An evaluation of the knowledge management strategy compare