The Concept And Type Of Knowledge Business Essay

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This chapter is divided into few sections. Section 2.1 describes the concept and type of knowledge. Section 2.2 outlines knowledge management history followed by section 2.3 that discusses main areas of knowledge management from key dimensions; that is people, process and technology. Section 2.4 portrays the concept of customer relationship management and its measurement. Lastly, section 2.5 identifies the relationship of five KM practices with CRM metrics as hypotheses.

Concept of Knowledge

Philosopher of 16th century, Francis Bacon quoted, "Knowledge is power" (Liao, 2003). Knowledge has been a subject of philosophy for centuries. It is challenging to develop accurate definitions for knowledge and debate on its anatomy. Generally, knowledge is made up of both data and information.

Data is usually raw symbols, alphabets and numbers that merely exist and have no significance beyond its existence. Data represent objects, events and their properties (Nunamaker, Romano and Briggs, 2001). Raw data are lack of context and does not have meaning in it, nor any meaningful relations to anything. However, data are carriers of information (Kock, McQueen and Corner, 1997) where it brings meaning to the existence of data. Hence, this make data indispensable as it is the basic structural and functional unit of all information.

On the contrary, information consists of organised data and presented in a significance manner, in the form of relationships, chronologies or structures. Information is a representation, outline or sketch. It is a set of data that has been given meaning, to the recipient, through relational associations (Nunamaker et al., 2001). Therefore, information is regarded as meaningful and useful data. Bierly, Kessler and Christensen (2000) noted that learning about information is the process of giving form to data.

Knowledge is information organised into meaningful patterns where these patterns are more than mere relations as they demonstrate a completeness and consistency of relations to create their own context (Nunamaker et al., 2001). Knowledge is contextual information, values, framed experiences and expert insights that provides a blueprint to evaluate and incorporate new experiences and information (Yahya and Goh, 2002). While information is being descriptive, where it refers to past and present, knowledge is saliently predictive, where it provides the basis for prediction of future with a degree of certainty based on information about past and present (Kock et al., 1997).

Differences of data, information and knowledge can only be discovered through external means or from user's perception. briefly outlines distinctions of these concepts. Data and information are often distinguished based on their presentation whereas information and knowledge are distinguished based on interpretation of recipient (Bhatt, 2001). Although the concepts of data, information and knowledge are three distinct and abstract entities, they can be seen as existing on a single continuum (Koh et al., 2005). shows the data-knowledge continuum. In a nutshell, data are items or events, information is a context-based arrangement of items by relating these data and knowledge is judgement of the significance of information, which comes from a particular context or theory (Koh, Gunasekaran, Thomas and Arunachalam, 2005).

Table 2‑: Distinctions of the Three Entities




Raw facts


Meaningful, useful data


Clear understanding of information

SOURCE: Bierly et al. (2000). "Organisational learning, knowledge and wisdom." Journal of Organisational Change Management, 13(6), 595-618.

Figure 2‑: Data and Knowledge Continuum

SOURCE: Probst, Raub and Romhardt's (2000) Study as cited in Koh et al. (2005). "The application of knowledge management in call centres." Journal of Knowledge Management, Vol. 9, No. 4, pp. 56-59.

In many literatures, researchers divide knowledge into two main areas; tacit and explicit knowledge. Polanyi proposed the knowledge dichotomy of explicit and tacit dimension back in 1950s (Li and Gao, 2003). Tacit knowledge is defined as knowledge that is non-verbalised, intuitive and unarticulated, action-based and unformulated, highly personal and hard to transfer. It is the personal knowledge used by individuals to perform their work and gain through personal experience but cannot, or difficult, to be articulated (Mohamed, Stankosky and Murray, 2006). Another form of tacit knowledge, implicit knowledge, is the kind of knowledge that is shared and comprehend by people or community who are either unwilling, or unable to express it explicitly (for instance, due to cultural factors) without a proper space (Li and Gao, 2003). There are two dimensions of tacit knowledge; namely technical dimension, which comprises of informal personal skill sets or crafts (often referred as "know-how") and cognitive dimension, that encompassed belief, values, models and schema (Civi, 2000).

On the other hand, explicit knowledge is tangible, clearly stated and consisting of details, which can be recorded and stored. Explicit knowledge is formalised and written, expressed in the form of data, verbal, diagrams, scientific formulae, specifications, manual, or textbooks. Knowledge of such category is transferred easily in community and accessible by others as it is codified and stored in different repositories. Differences in both schools of knowledge can be best described in an example of architecting a sculpture. Explicit knowledge for design covers templates and practical geometric notion that masons and artisans use to explain, plan and execute the task whereas tacit knowledge in this activity includes craftsmanship such as the artisan's knowledge of how hard to hit a stone without cracking it. While subjectivity is the hallmark of tacit knowledge, explicit knowledge is characterised by objectivity (Sivakumar and Roy, 2004). depicts the differences between two types of knowledge.

Table 2‑: Differences between the Two Types of Knowledge

Tacit Knowledge (Subjective)

Explicit Knowledge (Objective)

Knowledge of experience (body)

Knowledge or rationality (mind)

Simultaneous knowledge (here and now)

Sequential knowledge (there and then)

Analogue knowledge (practice)

Digital Knowledge (theory)

SOURCE: Nonaka and Takeuchi's (1995) study as cited in Perez and Pablos (2003). "Knowledge Management and Organisational Competitiveness: A framework for human capital analysis." Journal of Knowledge Management, 7(3), 82-91.

Although there is a distinction between tacit and explicit knowledge, they are not mutually exclusive to each other (Gao, Li and Clarke, 2008). Knowledge moves from tacit to explicit, vice-versa, and any other combinations. In 1994, Nonaka established a model of knowledge creation where knowledge are interacted and interchanged among mankind in their activities.

Nonaka (1994) postulated that knowledge is created through diffusion between tacit and explicit knowledge in four different "dimensions" of knowledge conversion: (1) from tacit knowledge to tacit knowledge, (2) from explicit knowledge to explicit knowledge, (3) from tacit knowledge to explicit knowledge, and (4) from explicit knowledge to tacit knowledge.

Movement of tacit knowledge to tacit knowledge, is also called socialisation, is a process of sharing experiences which creates tacit knowledge, such as shared mental models and technical skills. The significant note here is that a learner can acquire tacit knowledge without spoken speech. Apprentices work with their mentors and discover craftsmanship through observation, imitation and practice, in addition to verbal instructions.

Shift of tacit knowledge to explicit knowledge, or externalisation, is a knowledge creation process where tacit knowledge becomes explicit by taking the shapes of metaphors, analogies, concepts, formulae, specifications, hypotheses or models.

Drift of explicit knowledge to explicit knowledge, or combination, involves combining different bodies of explicit knowledge. Individuals exchange and combine knowledge through mechanisms, such as meetings and conferences. The reconfiguring of existing information through arranging, adding, regrouping, and reapplying of explicit knowledge can lead to new knowledge.

Displacement of explicit knowledge to tacit knowledge, or internalisation, is a process of incarnating explicit knowledge to tacit knowledge. This flux is similar to on-the-job training in commercial context. Explicit knowledge created is shared throughout an organisation and converted into tacit knowledge by individuals through internalisation (Nonaka, Toyama and Konno, 2000).

In the knowledge-creating organisation, these four conventions exist in dynamic interaction and form a spiral of knowledge (Nonaka, 1991). shows the four styles of knowledge conversion and evolving spiral movement of knowledge through SECI (i.e. Socialisation, Externalisation, Combination, and Internalisation) process.

In the spiral of knowledge creation, interaction between tacit and explicit knowledge is amplified through these four styles of knowledge conversion. Discovery of knowledge through the SECI process can trigger a new spiral of knowledge creation which expands horizontally and vertically across organisation. This spiral grows as it hikes through the ontological levels.

Figure 2‑: SECI Process

SOURCE: Nonaka et al. (2000). "SECI, Ba and Leadership: A Unified Model of Dynamic Knowledge Creation." Long Range Planning, 33(1), 5-34.

Nonaka (1991) exemplify the flow by citing Ikuko Tanaka's case in Matsushita of manufacturing industry. First, she learns the secrets of Osaka International Hotel's baker (socialisation). Then, she transforms them into explicit knowledge where she can articulate it to her team members. Subsequently, her team standardises this information, translates it into workbook and combines it into a product. Finally, they successfully internalise their tacit knowledge repository through the experience of creating a new product. In this context, they understand, in an intuitive way, to produce bread-making machine that bakes professional quality bread.

Then, the spiral of knowledge kicks off all over again to a higher level. New tacit insight about genuine and superior quality, developed in designing the home bread-making machine, is informally disseminated to other Matsushita employees. They adopted it to formulate quality standards for other new Matsushita products, such as household appliances and audiovisual equipments. As such, the organisation knowledge base grows broader in a long run.

The power of knowledge is a very important resource for upholding valuable heritage, discovering new subjects, resolving problems, creating core competencies, and initiating new situations for both individual and organisations (Liao, 2003). In the age of rapid knowledge expansion, external and internal knowledge sources are available in abundance (Tsai and Lee, 2006). In business lexicon, questions of how knowledge is being assimilated to a competitive advantage are often asked. To benefit from knowledge, it has to be managed first. This is where knowledge management comes into mankind's history. So, where did knowledge management comes from?

Evolution of Knowledge Management

History of managing knowledge goes back to earliest civilisations (Wiig, 1997a) as rational observation indicates that knowledge has been pursued as long as records of human activities are available. In the forth century BC, Aristotle observed that "All men by nature desire knowledge" (Bogdanowicz and Bailey, 2002).

Oral traditions manifested in pre-writing era where knowledge is transferred by mouth to ear. Although there was no structured and proper method of managing, storing and transferring knowledge then, relevant knowledge was passed on from ancestors to their heirs (Cheng, 2002). For hundreds of years, business owners have channelled their commercial wisdom to their children, master craftsmen have painstakingly taught their skills to apprentices and workers have exchanged ideas as well as know-how on the job (Hansen, Nohria and Tierney, 1999). The earliest surviving example of actions to manage knowledge was first demonstrated in China, before AD 220, using woodblock printing techniques for printing text, images or patterns on cloth. There is also the cuneiform of Sumer and Akkad that used wooden stylus on baked wet clay (Ives, Torry and Gordon, 1998). Then, alphabetic writing came together with technology of papyrus. Since then, sheer quantity of knowledge, such as literary and academic works, steadily increased with the development of recording media where they are easily recorded and transported.

Knowledge management has been examined and practiced by philosophers for centuries, although the terminology was not widely used until end of 20th century. Wiig (1997b) highlights that historic developments may be portrayed by the following stages of economic activities and foci:

Agrarian Economies: Activities revolved around hunting and gathering activities. Hunter-gatherers develop and accumulate extensive knowledge of their environment such as sources of food, dangers and opportunities that exist within their territory (Cheng, 2002). Such knowledge was not explicitly recognised then.

Natural Resource Economies: People facilitate conversion of natural resources to commodity before selling them to markets. Knowledge started to be recognised, within the guilds and its masters.

Industrial Revolution: During 19th centuries, product manufacturing processes were organised and mechanised to improve the efficiency by adopting Frederick W. Taylor's scientific management (Bohn, 2005). Workers produce as much goods as possible using formalised knowledge and standardised procedures.

Product Revolution: During first half of 20th century, notion of product sophistication started to paint history of business. Exchange of expertise knowledge between professionals and craftsmen increase tremendously.

Information Revolution: During second half of 20th century, information technology (IT) became available and resulted closer control in manufacturing, logistics and marketing. Since then, sheer information flows between enterprises and their suppliers as well as customers were overwhelming.

Knowledge Revolution: In 1990s, basis for competition has shifted towards how knowledge and other intellectual assets make the organisations' customers successful. This realisation led to emergence of a new critical success factor; that is how to serve individual customers. Versatility and intelligent behaviour of knowledgeable employees became the power and driver to meet sophisticated requirements and demands from individual customers' and modern market.

Review of Knowledge Management

Definition of Knowledge Management

Although there is a strong and undoubted interest from commercial world, the term knowledge management has no universally accepted definition (Earl and Scott, 1999) and no consensus about what the term really means (Shin, Holden and Schmidt, 2001; Salisbury, 2003). As academic development of knowledge management has not stabilised and filtered into the industry (Choy, Yew and Lin, 2006), researchers are constantly attempting to forge their own definitions (Salisbury, 2003). Hence, different definitions of knowledge management in literatures, from various contexts and perspectives, are specific to the researchers and their fields (Choy et al., 2006).

Bhatt (2001) posits knowledge management as a process of knowledge creation, validation, presentation, distribution and application. Salisbury (2003) further accentuates that ongoing knowledge management cycle as deployment of comprehensive system which enhances the growth of an organisation's knowledge by creating, preserving and disseminating knowledge. As this cycle continues to build upon itself, it becomes a knowledge spiral as in SECI process (Nonaka, et. al, 2000).

Knowledge management is a process that helps organisations to find, select, organise, disseminate and transfer important information and necessary expertise for activities, such as problem solving, dynamic learning, strategic planning and decision making (Gupta, Iyer and Aronson, 2000; Beveren, 2002). Similarly, Horwitch and Armacost (2002) defines knowledge management as the practice of creating, capturing, transferring and accessing the right knowledge information in order to design better policy, modify action and deliver results.

O'Dell and Grayson (1998) believe knowledge management is a process of identifying, capturing and leveraging knowledge to help the company compete. In the same way, Singh (2008) asserts that management of knowledge is budgeting learning at an organisational level, which can be assimilated by an organisation and its members for self-renewal.

Knowledge management is the process of continually managing knowledge of all kinds to meet existing and emerging needs, to identify, exploit and develop new opportunities (Quintas, Lefrere and Jones, 1997). Knowledge management is to understand, manage systematic knowledge, deliberate knowledge building renewal and apply it to maximise the enterprise's knowledge-related effectiveness (Wiig, 1997b).

To summarise, knowledge management are efforts designed to (1) capture knowledge; (2) store knowledge (Martensson, 2000); (3) convert personal knowledge to group-available knowledge; (4) connect people to people, people to knowledge, knowledge to people, and knowledge to knowledge; and (5) measure that knowledge to facilitate management of resources and help to understand its evolution (O'Leary, 1998). Knowledge management can be viewed as the management of knowledge-related activities in order to create value for an organisation (Wong and Aspinwall, 2004).

In a nutshell, knowledge management will lead an organisation to perform better and be more competitive. Purpose of managing and leveraging a company's knowledge is to maximise returns to the organisation (Bose, 2004) and sustain its competitiveness in global oriented market (Ergazakis, Karnezis, Metaxiotis and Psarras, 2005).

Knowledge Management Framework

"How to manage knowledge" has emerged into an important issue in the past few decades where knowledge management community has developed a wide range of technologies and applications for both academic research and practical applications (Liao, 2003). In this study, several frameworks of knowledge management have been reviewed.

Wiig proposed a knowledge management framework of three pillars, as in , which represents major functions to manage knowledge. These pillars constructed on the basis of knowledge creation, manifestation, use, and transfer.

Figure 2‑: Pillars of Knowledge Management

SOURCE: Wiig's Study as cited in Holsapple, C.W. and Joshi, K.D. (1999). "Description and Analysis of Existing Knowledge Management Frameworks." Proceedings of the 32nd Hawaii International Conference on System Sciences, Maui, USA.

Choo (1996) presented a knowing organisation framework (as illustrated in ), where an organisation uses information strategically for sense-making, knowledge creation, and decision making. The framework possesses information and knowledge, which carry a unique competitive edge, enabling it to manoeuvres with intelligence and creativity. Shell Group of Companies has adopted this model effectively to manage and integrate its processes in scenario planning and strategy development (Choo, 1996).

Van der Spek and Spijkervet (Year??) identified a cycle of four knowledge management stages; that is conceptualise, reflect, act and retrospect. Conceptualising phase revolves around collecting insights into knowledge resources. Subsequently, in reflection stage, the conceptualised knowledge is evaluated using a variety of criteria to establish required improvements and plan improvement process. In act phase, new knowledge is developed, distributed, combined and upheld. Finally, retrospect stage recognises effects of act stage, evaluates results achieved as well as compares old and new situations. denotes that these stages in the cycle are influenced by internal and external developments.

Figure 2‑: The Knowing Organisation

SOURCE: Choo, C.W. (1996). "The Knowing Organization: How Organizations Use Information to Construct Meaning, Create Knowledge and Make Decision." International Journal of Information Management, 16(5), 329-340.

Figure 2‑: Framework of Knowledge Management

SOURCE: Van der Spek and Spijkervet's Study as cited in Holsapple, C.W. and Joshi, K.D. (1999). "Description and Analysis of Existing Knowledge Management Frameworks." Proceedings of the 32nd Hawaii International Conference on System Sciences, Maui, USA.

Leonard espoused a framework of four knowledge-building activities; (1) shared and creative problem solving (to produce current products), (2) implementing and integrating new methodologies and tools (to enhance internal operations), (3) experimenting and prototyping (to develop capabilities for future usage), and (4) importing and assimilating external technologies. These activities surround four core capabilities which includes physical systems (storage and repositories to accumulate knowledge), employees' skill sets and management strategy (structured procedures and systematic processes to govern knowledge flow) as well as organisation's values and norms (determining the believes to sought knowledge and knowledge-building activities encouraged within organisation). These knowledge creating and diffusing activities as schematised in .

Figure 2‑: Core Capabilities and Knowledge Building Activities

SOURCE: Leonard's Study as cited in Holsapple, C.W. and Joshi, K.D. (1999). "Description and Analysis of Existing Knowledge Management Frameworks." Proceedings of the 32nd Hawaii International Conference on System Sciences, Maui, USA.

Petrash (1996) engendered a knowledge management model involving three types of organisational resources that are referred as intellectual capital; such as human capital, organisational capital and customer capital as shown in . Human capital is the knowledge that each individual possesses and develops whereas organisational capital is the knowledge that has been recognised as norms, processes and culture of an organisation. Then, customer capital is perceived value determined by a customer from doing business with the supplier of goods or services (Holsapple and Joshi, 1999). Exchange and flux of these capitals lead to value creation for an organisation.

Figure 2‑: Intellectual Capital Model

SOURCE: Petrash, G. (1996). "Dow's Journey to a Knowledge Value Management Culture." European Management Journal, 14(4), 365-373.

Nonaka (1994) posited that organisational knowledge creation, as distinct from individual knowledge creation, takes place when all four modes of knowledge creation; that is socialisation, combination, externalisation and internalisation, are "organisationally" managed to form a continual cycle. Then, this cycle shapes a series of shifts between different modes of knowledge conversion. The interactions between tacit knowledge and explicit knowledge will tend to improve and grow when more participants in the organisation become involved. Thus, organisational knowledge creation can be viewed as an upward spiral march, commencing at individual level moving up to collective level, and followed by organisational level, sometimes reaching out to inter-organisational level. portrays the transfusion of knowledge.

Figure 2‑: Spiral of Organisation Knowledge Creation

SOURCE: Nonaka et al. (2000). "SECI, Ba and Leadership: a Unified Model of Dynamic Knowledge Creation." Long Range Planning, 33(1), 5-34.

Stankosky and Baldanza developed a conceptual knowledge management framework comprises of four pillars as ''foundation'' to any knowledge management system (Mohamed et al., 2006). As outline in , the four pillars personify:

leadership, that develops a business strategy to survive, vision itself to succeed, establishes and implements the strategy and nourishes culture and climate, as well as interacts with the environment.

organisation, a structure which supports strategy. The right business processes and performance management system must be strong to deal with turbulence yet flexible enough to adapt to change.

technology is an enabler, essential asset for decision support, data warehousing, process modelling, management tools, and overall communications. Technology must reinforce the business strategy, add value, and be measured.

learning, lessons learned are actualised to improve effectiveness and efficiency. It must be built from managing information to building enterprise-wide knowledge, then managing that knowledge to organisational learning and change.

Figure 2‑: Knowledge Management Four Pillars

SOURCE: Stankosky and Baldanza's (2000) Study as cited in Mohamed, M., Stankosky, M. and Murray, A. (2006). "Knowledge management and information technology: Can they work in perfect harmony?" Journal of Knowledge Management, 10(3), 103-116.

Firestone and McElroy (2005) presented a three-tier framework (as in ) of knowledge management. Knowledge processing mechanism are always present in organisations, however they can be enhanced with knowledge management procedures. Knowledge management is a set of process that seeks to change the organisation's existing pattern of knowledge processing and enhance its outcomes. There are two types of knowledge process; namely knowledge production and knowledge integration. Knowledge production is the process where an organisation executes as well as produces new general knowledge, and other knowledge; where creation is non-routine. On the other hand, knowledge integration is process to convey this new knowledge to individuals and groups in the organisation. With knowledge management in place to enhance knowledge process, organisation would then enjoy positive business process performance and outcomes.

Figure 2‑: Three-tier Framework

SOURCE: Firestone and McElroy. (2005). "Doing knowledge management." The Learning Organisation, 12(2), 189-212.

Each framework or model addresses certain knowledge management elements; however, none of them subsumes all of the others. However, these frameworks represent a congruence of many literature bodies including management, organisational behaviour and information systems. Thus, knowledge management initiatives require a tripartite view of people, process and technology (Bhatt, 2001; Massey, Montoya-Weiss, and O'Driscoll, 2002; Gorelick and Tantawy-Bonsou, 2003; Cong and Pandya, 2003; Yang, Chen, and Shao, 2004; Ergazakis et al., 2005; Wickramasinghe, 2006; Dyer, 2007; and Deng, 2008). Generally, knowledge management involves four key steps of creating, storing, transferring and reusing knowledge. Hence, synergy of these three knowledge management essences on the four steps of knowledge management forms a knowledge management diamond as shown in .

Figure 2‑: Knowledge Management Diamond

SOURCE: Wickramasinghe, N. (2006). "Knowledge creation: a meta-framework." International Journal of Innovation and Learning, 3(5), 558-573.

The premise for knowledge management is based on a paradigm shift in business environment, where knowledge is central to organisational performance (Wickramasinghe, 2006). Organisational knowledge is form through unique patterns of interactions between people, process and technology, which other organisation cannot imitate easily as these interactions are form by the organisation's unique history and culture (Bhatt, 2001). Hallmark of this interaction is unique to an organisation, and it cannot be trade in the marketplace. Thus, people, process and technology are the three key elements of a knowledge environment. As business environment becomes more turbulent and time dependent, organisational productivity often depends on an in-depth knowledge of people, process and technology (Nelson and Cooprider, 1996).


The "people" factor has frequently been discoursed, in the context of process or technological interface, in the acquisition and dissemination of knowledge. People are core of organisational knowledge creation because they are the entity to create and share knowledge.

Knowledge transpiration in organisation is about beliefs and commitment of people (Nonaka, 1991). Tacit knowledge is mainly discovered and presented through process, considerations and errors made in practices, on-the-job training, collective activities, information shared through conversation and story telling (Mathew and Kavitha, 2009). In addition, intellectual capital, possessed by human, is the future basis of sustaining a competitive advantage as organisation starts to focus on their intangible assets. As a result, human capital, rather than physical or financial capital, is the key differentiator to leaders in the market (Perez and Pablos, 2003).

On the part of people, leadership (Ribiere and Sitar, 2003; Singh, 2008) and organisation culture (Leidner, Alavi and Kayworth, 2006; Janz and Prasarnphanich, 2003) are the biggest enablers of knowledge management (Yu, Kim, and Kim, 2004). This is due to the fact that job description, necessary knowledge for a job, and work atmosphere are clearly define for learning and change continues to occur (Yeh, Lai, and Ho, 2006).

Leadership is particularly important for willing to 'evolve' their organisational culture to a knowledge-supporting culture (Ribiere and Sitar, 2003). Knowledge management practices, must be actively and aggressively, endorsed and practiced by company's leaders. If knowledge management does not permeate to all levels in the organisation, beginning from the top, it is unlikely that knowledge management programmes will be effective (DeTienne, Dyer, Hoopes, and Harris, 2004). Usually commitment of leaders will determine the amount of resources allocated and amount of time that is allowed for members to create and share knowledge (Krogh, 1998).

Organisational culture, in particular, has been espoused by various researchers as a crucial facet that will determine the success or failure of a knowledge management initiative (Davenport et al., 1998; Liebowitz, 1999; Jarrar, 2002). Social setting (consisting of tacit knowledge; namely, norms and practices) is the transmission medium of underlying values and beliefs to specific knowledge management behaviors (Leidner et al., 2006). Organisational culture determines the social context about who is expected to control what knowledge, who must share it and who can hoard it (De Long and Fahey, 2000). explains the conceptual linkage between culture elements and knowledge management behavior.

Figure 2‑: Culture Elements Influence Behaviours

SOURCE: De Long, D. W. and Fahey, L. (2000). "Diagnosing cultural barriers to knowledge management." Academy of Management Executive, 14(4), 113-127.


As people are considered as core focus of knowledge management, how to manage them becomes the next main discussion topic. The question of how human can be an enabler to support knowledge management needs to be answered. Many researchers have postulated key practices of how human resource development is capable of encouraging knowledge management in organisation (Akhavan, Jafari and Fathian, 2006; Malhotra and Galletta, 2003; Yahya and Goh, 2002; Wong and Aspinwall, 2005). The common human resource ideology advocated in knowledge management are two key motivation practices namely, training and development (Chong, 2006; Hung et al., 2005; Hwang; 2003) as well as rewards and recognition (Lee and Ahn, 2007; Bartol and Srivastava, 2002).

There is an important implication on firm's growth in transforming technical knowledge into codes that is understood by its employees. An individual is a resource severely restrained by physical and mental limitations. Unless firms are able to train large numbers of individuals or to transform skills into organising principles, the craft shop is forever simply a shop (Kogut and Zander, 1992). Speed of knowledge replication determines the growth rate and deters competitive erosion of market position. Moreover, education and training of a person reduces learning curve (Bierly et al., 2000), which increase productivity.

For spreading of knowledge policies and totality of knowledge in the organisation, employees should be completely and deeply familiar with its concepts. Hence, training programmes, which conducts knowledge, are very important for an organisation (Akhavan et al., 2006). Knowledge should be standardised and released, in order to be comprehended and assimilated, at minimal cost to those with requisite training to transfer knowledge. Thus, formal training sessions are required to disseminate knowledge. These sessions include oral and practical training, involving experts and facilitators. Imitation, observation and listening to experts will help participants to internalise tacit knowledge (Whittom and Roy, 2009).

A reward system is, deliberate use of financial resources in a process, designed to encourage people to achieve organisational objectives (Whittom and Roy, 2009). On the other hand, recognition system is a non-financial award given to employees selectively, in appreciation of a behaviour or accomplishment (Milne, 2007). As organisations are often fraught with internal competition for rewards and promotions (Menon & Pfeffer, 2003), employees normally regard their personal knowledge as ability to secure their positions in the organisation. Hence, reward and recognition systems that emphasises contributions to information input and dissemination rather than information retention are necessary (Bennett and Gabriel, 1999). Thus, a performance appraisal system is adopted to encourage employees' knowledge management activities by rewarding positive behaviours to stimulate knowledge exchange and sharing within group members and collaboration (Yahya and Goh, 2002).


Technology is a catalyst of knowledge management (Tsui, 2005). Researchers (Wiig, 1997b; Mohamed et al., 2006) have incorporated technology as one of the key element to knowledge management. In the era of ancient Egypt, knowledge is stored using papyrus. Today, massive amount of information are stored in the form of computer databases. Nevertheless, emphasis is now shifting away from the 'database centred' view of technology towards information and communications technologies (ICT). The new economists look at ICT as, drivers of change, tools for releasing potential knowledge embodied in people (Chong, 2006). ICT are supporting emergence of new organisational forms and working patterns, which are transforming the ways an organisation function, especially the ways in which they interact and communicate (Quintas et al., 1997). In a brief period of time, ICT became a hygiene factor, as without it, knowledge sharing can be obstructed (Yeh et al., 2006). Furthermore, networking technology has enable transferring and sharing of information, in both local and wide area network, linking the virtually ubiquitous internet (Ives et al., 1998).

Internet technology has engendered knowledge management to a new frontier as it breaks knowledge-sharing barriers due to geographical boundaries (Holsapple and Joshi, 2000). People are able to share and transfer knowledge with Electronic Data Interchange (EDI) and electronic mail. In addition, there are more sophisticated software leading to collaborative systems and 'groupware'. Collaboration system comprises of communication tools (e.g. e-mail, instant messaging and fax) and conferencing tools (e.g. internet forums, video conferencing, distance learning and social networks) that are used to send data and information between people. Hence, collaboration system facilitates creation, sharing and reusing of knowledge. Recently, there is a huge hype over a terminology riding on internet technology, called cloud computing, where it is a platform that focuses on sharing data and computations, over a scalable network of nodes, at a cost efficient manner. Organisations are able to leverage on these networked nodes for product and services innovation. Greater shared context and effective collaboration reduces the need for direct simultaneous communication (Wiig, 1997a). Technology has enabled a common controllable environment so that knowledge can be shared within and among organisation (Davenport et al., 1998).

Technology has also fosters the advancements in information processing techniques, expert system, decision support system, artificial intelligence, hybrid neural network and online analytic processing (OLAP) algorithm (Lau, Ning, Pun, Chin and Ip, 2005). These technologies led to embedment of data and discovery of new knowledge in business processes that spread across multiple organisations (Tsui, 2005). For instance, the database garners data generated from workflows in a timely and efficient manner. Subsequently, information related to trend of sales and demand, in terms of customer preference and expected requirement, is churn using analytical module. Based on the result, it provides a recommendation for a decision making process (Lau et al. 2005). Concisely, each technological instrument has its role to orchestrate knowledge management initiatives.

Review of Customer Relationship Management (CRM)

Long ago, businesses were well adapted to managing customer relationships where customers are greeted by names, employee knew exactly what each customer had ordered and what commodities they preferred (Bose, 2002). However, as organisation grows and mass production starts to paint the business history, commercial sales activities revolved around convincing customer to procure whatever organisation had to sell. Over the years, through mass marketing and increased consumerism, customers traded relationships for anonymity, reduced variety and lower prices (Peppard, 2000). Such sales strategy is initially successful and profitable, but some organisations in the seasoned growth industries have actually stopped growing. Root cause of their failure is not that these industries are saturated, but organisation's business offering is unable to address customer's needs for personalised services. One of the original big ideas in marketing is that, for firms to stay in existence, they should focus on fulfilling needs rather than selling products (Levitt, 1975).

In 1983, Berry has advocated the concept of relationship marketing and many scholars diverge into new areas, such as customer relationship management, one-to-one marketing and customer management. Since then, concept of customer relationship marketing intensifies as an icon of dual value creator, where emphasis is on creating value for customer and for organisation to sustain in the industry (Boulding et al., 2005). portrays the relationship of relationship marketing and CRM.

Figure 2‑: A Hierarchy of Relationship Marketing and CRM

SOURCE: Ryals, L. and Payne, A. (2001). "Customer relationship management in financial services: towards information-enabled relationship marketing." Journal of Strategic Marketing, 9(1), 3-27.

Over the years, CRM has a plethora of meanings. Generally, it is define as management strategy to manage business interactions with customers by integrating business processes and technologies to understand customers (Kim, Suh and Hwang, 2003) and enable customer loyalty-building and profitable segmentation (Minami and Dawson, 2008). It focuses on developing and maintaining relationships with individual customers (Peppers and Rodgers, 1993) by knowing them well, giving them outstanding services and anticipating their needs to increase organisation revenues and profits.

Ideology of CRM penetrates into various industries, regardless of their domains and sizes. Though the theme is received with positive response, it widely discussed within financial services compared to any other industry group (Ryals and Payne, 2001). Nonetheless, a research shows that banking is one of the sectors performing particularly poor in customer relationship management across the Malaysia industry (Starkey, Williams and Stone, 2002).

Malaysia financial system had undergone significant transformation since the 1990s, where a major milestone of consolidation exercise took place in 1999, which 55 domestic banks merged to form ten anchor banks. The sector had evolved to become more diversified and efficient, thus enabling it to effectively perform as a key contributor to economic growth and changing customer demands (Khan, 2010) as well as meeting challenges of globalisation and liberalisation (Wei and Nair, 2006). With banking industry opened to foreign competitions in 2007, competition has intensified dramatically. Competition exacerbates when products and services within the financial industry shares great similarity with affordable switching costs (Wei, 2009).

Most financial institutions are aware that some customers are more profitable, but some other organisations treat all customers in the same manner. Many banks believe the concept of Pareto type 80/20 rule, where 80 percent of profits come from 20 percent of customers (Karakostas, Kardaras and Papathanassiou, 2005). Nevertheless, some financial institutions have found that high profit households represent in excess of 100 percent of profits because unprofitable ones subtract so much and loyal customers are not necessarily profitable if they were also high users of the institution's services (Peppard, 2000). Customers differ in their value to an organisation, hence customer satisfaction, retention and loyalty-building efforts should not target all customers in the same fashion (Ganesh, Arnold and Reynolds, 2000). Thus, financial service providers need to fathom that mass marketing strategy is no longer relevant and CRM is the solution to customer segmentation through analysis of their profiles, purchasing behaviour and history.

After the amalgamation of these financial institutions in 1999, these organisations hold enormous amounts of data on their customers (Ryals and Payne, 2001). While data about customers are readily available through existing database, data alone do not lead to customer knowledge (Campbell, 2003). After this information is capture, it can be processed and converted into customer knowledge based on information-processing rules and organisational policies. Financial service providers can use this customer knowledge to profile customers and identify their latent needs based on similarities in their purchase behaviour. Then, share these accumulated customer knowledge with customers, enabling them to serve themselves by defining the service and its delivery to suit their needs (Mithas et al., 2005).

CRM is a technology-integrated duct to deliver customer service through fulfillment of needs. In the context of Malaysian financial sector, customer services is deployed to assist customers to achieve their needs and wants through multi-channel touch points, such as trained financial staffs in service counters, personal financial managers, automatic teller machines, call centres, automated phone system and internet portal. These are the front liners conveying highly personalised services while capturing customer's preference and needs.

Financial institution can maximise profits of each customer knowledge base with appropriate CRM implementation. Moreover, financial with largest customer base and highest customer retention rate will cease to be a market leader in local financial industry (Khong & Richardson, 2002). As financial players will want to have a customer-centric or one-to-one relationship and to increase shareholders' value, it is essential to understand how customers behave and how they prefer to interact. Then, organisations can redesign core product offerings and devise appropriate channel strategies (Peppard, 2000). Hence, CRM would be one of the critical success factors in financial sector as they realise that competitive advantage will not be achieved via product differentiation only (Karakosta et al., 2005).

CRM metrics

One major drawback in CRM system is the measurement process (Boulding et al., 2005). Many financial institutions have implemented CRM application; however, they have overlook or neglect to measure its outcome. In addition, there is an inadequacy of a universal acceptance for CRM metrics across the business sector (Karakosta et al., 2005). CRM metrics is generally the actual benefits that organisations receive through the use of CRM (Croteau and Li, 2003). Traditional performance measurement systems, which tend to be functionally driven, may be inappropriate for CRM (Payne and Frow, 2005). Therefore, this study adapts customer-focused evaluation framework by Jutla, Craig and Bodorick (2001) with two touchstone as CRM metric; namely customer satisfaction and customer loyalty.

If CRM is not implemented in a systematic and structured manner, there is a risk that the underlying value proposition that generates outcome metrics, such as satisfaction (Boulding et al., 2005) and loyalty would be degraded. Douglas Allred, Senior Vice President of Cisco Systems opines that "If your customer satisfaction is decreasing, you're in a death spiral. Customer satisfaction equals customer loyalty." (Close, Ferrara, Galvin, Hagemeyer, Eisenfeld and Maoz, 2001). Ryals and Payne (2001) indicate that successful CRM includes achieving a measurable improvement in customer loyalty and customer satisfaction. Therefore, this study would focus on these two barometers for CRM implementation.

Customer Satisfaction

Customer satisfaction has received considerable attention from scholars in marketing (Anderson and Sullivan, 1993; Mittal and Lassar, 1998; Mithas et al., 2005; Wei and Nair, 2006). Customer satisfaction is generally regarded as the post-consumption evaluation based on perceived quality, expectations, value and concurrence (Anderson, 1994) of a product or service. Besides, it also determines whether the buyer will become a permanent customer (Kim et al., 2003). Customer satisfaction will enable financial institution and customer to stay in a stable relationship and execute transactions in a long run because of the positive interaction experiences. However, customer satisfaction is difficult to measure because it is hard to quantify the satisfaction level (Kim et al., 2003).

Customer satisfaction is crucial to the sustainability and profitability of all business organisations. This is due to the fact that high customer satisfaction are always assets of the financial service providers as it reduced price elasticity, insulate current customers from competitive efforts, lower costs to attract new customers and raise reputation for the organisation (Anderson et al., 1994). Satisfied customers generally talk constructively about the organisations to others (Adhikari and Adhikari, 2009). This word of mouth marketing has significant place to marketing effort as consumers have been found to rely greatly on it especially at pre-purchase stage, to reduce the level of perceived risk and uncertainty that are often associated with service purchase decisions (Murray, 1991). Therefore, customer satisfaction does not only ply profits and reduce marketing cost but also establish respectable reputation for financial service providers.

Studies indicate dissatisfied customers will tell between eight and ten people about the bad service they received (Eccles and Durand, 1998). Situation aggravates on the explosive internet technology through blogs and discussion forums, where the complaints diffuse into the community speedily, regardless of geographic locations, ethnics and ages. Poor customer experiences have the opposite effect, in a larger magnitude, of satisfied customer because bad news travels faster and further than good news, which harm enterprise's ability to create relationships with new prospects (Radcliffe, 2001). Thus, financial institution's image may be jeopardised and lead to negative repercussion on market share.

Customer satisfaction is not only based on judgment of customers towards reliability of product or service delivered, but also on customers' experiences with the delivery process (Jamal and Naser, 2002). If customer are dissatisfied with the organisation, they would resort to switch/exit, complain (voice out the dissatisfaction) or bear with the dissatisfaction silently (hoping things may get better). When customers complain, they are giving the organisation an opportunity to rectify an issue. If the organisation remedies a problem in a professional and timely manner, customer will be "bonded" to them (Hart, Heskett and Sasser, 1990). Thus, complaint management is not only a mode to create customer satisfaction, but also engender customer loyalty. In short, customer satisfaction is an important in yardstick CRM measurements.

Customer Loyalty

Loyalty is referred as the extent, to which, customer intends to repurchase from service provider, whom has created a certain level of satisfaction (Soderlund, 1998). It is connected to an evolution of customer satisfaction as well as relationship between customer and financial institution (Mendoza et al., 2007). Although satisfaction has been conventionally regarded as an important antecedent of loyalty (Anderson and Sullivan 1993; Khan 2010), high level of satisfaction does not guarantee customer loyalty and satisfied customers may even switch to other financial service provider (Mittal and Lassar, 1998; Jones and Earl, 1995).

Most organisations neglected the cost of losing a customer and expected cash flows over a customer's lifetime as current accounting system focuses on revenue and cost within a proviso interval (Reichheld and Sasser, 1990). A study have shown that 5% increase in customer retention across a wide range of businesses yielded improvement in profitability, in net present value terms, from 20% to 85% (Reichheld and Sasser, 1990). Researchers have also observed that with each additional year of relationship between organisation and consumer, the customer becomes less costly to serve due to learning effects and decreased servicing costs (Ganesh et al., 2000). For instance, checking customers' credit histories and adding them into corporate database is expensive, however it is only a one time fixed cost and it can be leverage with number of years customer stays with the organisation. As financial institution gains experience with its customer, this experience enables organisation to serve customers more efficiently.

In short, increased customer loyalty leads to higher profitability and lower operational cost in financial institutions as customers stay longer, buy more and more frequent (Starkey et al., 2002). Thus, loyalty is another vital ingredient to CRM success metric.

Local financial institutions have adopted various loyalty programmes to reward and encourage repurchasing behaviours. For instance, credit cards usages are rewarded with cash rebates and/or "points" where customers can use them to redeem gifts. Another example is credit card companies collaborate with other retailers, such as hypermarkets, restaurants, etc, to provide discounts, freebies or any other forms of reward as a "subsidy" scheme to promote purchasing behaviour of their customers. Most customers would perceive these programmes as a "win-win" situation where they gain benefits whether directly or indirectly, while financial institution profits in the process.

On the other hand, customer loyalty is also beneficial to customers themselves as they are able to eliminate time in surveying, searching and evaluating other service providers before switching. If customer switches to a new financial institution, there is also a learning curve, which is time and effort consuming, for them to accustom to new providers.