Advancement In Information Technologies Commerce Essay

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Advancement in information technologies has offered organisations with more feasible solutions to manage their knowledge than before. Use examples from one or more organisations to illustrate the key issues that an organisation needs to take into account when using IT to manage its knowledge.

Knowledge is both a broad and abstract concept that is increasingly becoming a significant organisational resource in ensuring competitive advantage. In todays information economy, a major source of wealth and prosperity comes from the production and distribution of information and knowledge, with statistics suggesting that as much as 60% of US G.D.P is generated from the knowledge and information sectors (Laudon & Laudon, 2006) With this in mind, it is clear to see that effective knowledge management is of critical importance to organisations. Advancement in IT has been a key provider of both systems and tools to help companies manage this knowledge and use it more effectively. Using examples of two major consultancy firms from Hansen, Nohria and Tierney's study, "Whats your strategy for managing knowledge?", I will provide an argument that suggests that IT is a useful tool in facilitating the sharing and management of knowledge, which helps in increasing knowledge transparency and eliminating the many challenges of knowledge management.

In order to get a more complete picture of what knowledge management (KM) is, it is first necessary to define knowledge. Much literature describes knowledge as being a multi-dimensional concept, where it exists in different forms, locations and situations. Elaborating on the work of Polanyi (1962), Nonaka (1994) came up with two different forms of knowledge, tacit and explicit. Tacit knowledge is described as knowledge which has both cognitive and technical elements, the cognitive element refers to an individual's mental models consisting of mental maps, beliefs and view-points. The technical component consists of concrete know-how, and skills that apply to a specific context. An example of this would be the knowledge on how to ride a bike, as this is something which cannot be easily articulated. In contrast, the explicit dimension of knowledge can be easily articulated, codified, and communicated in language. An example of this would be an owner's manual accompanying the purchase of an electronic product, which would contain a set of documented rules on the appropriate operation of the product. Most knowledge will have elements of both tacitness and explicitness, and this is why IT developments have come up with a variety of solutions to support the varying forms of knowledge.

In addition to this, it is also noted that knowledge has a location and work by Blackler (1995) perhaps best explains these different locations. First and foremost, knowledge resides in the memories of individuals (is embrained). It can also be encoded, something that exists in written form, i.e the law, or can be encultured, which is knowledge that exists in certain moral values and norms. Embodied knowledge consists of contextual practices and is more of a social acquisition, as how individuals interact in and interpret their environment creates this tacit form of knowledge. Finally, embedded knowledge is explicit knowledge which resides within systematic routines, relating to the relationships between roles, technologies, and formal procedures within a system. The final dimension to knowledge is that it is situational. This means that knowledge can arise from instances such as learning from experience or trial and error. It can also be described as being contextual, in that we need to know under what circumstances to use knowledge, (Laudon & Laudon, 2006).

Now that it is understood that knowledge is a multi-dimensional concept, organisations need to be able to understand that managing each dimension of knowledge can provide challenges. Primarily, if knowledge is too tacit, it can be hard for firms to extract this information and use it to their advantage. This includes when tacit knowledge resides in the minds of experienced employees. According to a survey of european firms by KPMG Peat Marwick (1998), almost half reported having suffered a significant setback from losing key staff, with 43% experiencing impaired client or supplier relations and 13% facing a loss of income due to an employee leaving the firm. With regard to knowledge having different locations, problems can arise as often knowledge is described as "sticky", i.e the knowledge may be hard to transfer. (Laudon & Laudon, 2006). This is demonstrated in another survey which highlighted that key knowledge was embedded within an organisation, but identifying that it existed, finding it and leveraging it remained problematic, (Cranfield Univeristy, 1998). In another example, when the firm Chrysler restructured itself from functional to platform-based organizational units, they quickly realized that unless the suspension specialists could communicate easily with each other across platform types, expertise would deteriorate, (Ruggles, 1998), suggesting that enhancing communication throughout an organisation is an important issue in KM. Finally, the fact that knowledge is situational poses difficulties as certain situations require new knowledge to be created. This idea is explored in Brown & Duguid's study of Communities of Practice (1991), where research at the firm Xerox demonstrated that even though technicians were given six months training and were equipped with manuals, technicians often had to use their own tacit knowledge to come up with new solutions to unexpected situational problems when photocopiers broke down. All these factors suggest the difficulties associated with KM.

However, if these challenges are managed effectively, knowledge can be regarded as a key asset to a firm. The resource based view of a firm argues that a firms resources are what gives a firm a competitive advantage, (Barney, 1991). A more contemporary approach to this is the knowledge based view. Several studies have suggested that without knowledge, resources are dead, and that ultimately, it is about how you apply knowledge and know-how, to use resources in such a way to gain competitive advantage (Davenport & Prusak, 1998). With this in mind, we can see that if knowledge is to be used to the best effect in an organisation, then knowledge management is of paramount importance. As Allee (1997) points out, "whoever controls knowledge will best enjoy the most economic gain and therefore the most power," going on to state that "knowledge = power, so share it and it will multiply" ( p. 9).

Understanding the KM value chain is perhaps the best starting point for an organisation to effectively manage their knowledge. This model suggests that once a company acquires knowledge, it needs to be able to store, disseminate and then apply that knowledge. (Laudon & Laudon, 2006). Unless an organisation can achieve these processes, knowledge cannot be used to a firms advantage. This gives rise to KM strategy. According to Davenport & Prusak (1998), most knowledge management projects have one of three aims; to make knowledge visible in an organization, mainly through IT systems, secondly, to develop a knowledge-intensive culture by encouraging behaviors such as knowledge sharing and proactively seeking and offering knowledge, and finally to build a knowledge infrastructure, not only through IT systems, but a web of connections among people given space, time and tools to interact and collaborate. These three factors can be achieved through two distinct approaches; codification and personalisation.

Codification is the belief that knowledge is something you can abstract, use, and reuse. According to Hansen, Nohria & Tierney (1999), this approach involves knowledge being "carefully codified and stored in databases, where it can be accessed and used continuously by anyone in the organization." This approach focuses on reuse economics; the idea that you invest once in a knowledge asset and reuse it many times, with the aim of generating large overall revenues. The KM strategy focuses on a "people to documents" knowledge transfer. Effectively this is where an electronic system is created which codifies stores, disseminates and allows the reuse of knowledge. At the organisation Ernst & Young, where a codification strategy has been implemented, Ralph Poole, director of the firms Centre for Business Knowledge, describes the process as "develop[ing] 'knowledge objects' by pulling key pieces of knowledge such as benchmark data and market segmentation analyses out of documents and storing them in an electronic repository for people to use. This approach allows many people to search for and retrieve codified knowledge without having to contact the person who originally developed it," (p.3). Codification therefore relies on heavy investment in IT, which ultimately helps to make knowledge less tacit, and more explicit, improving the transparency of an organisation. The codification approach manages explicit knowledge which is both structured and semi-structured in form; this includes knowledge that exists in formal documents, but also in memos, electronic presentations and more. The benefit of having such an enterprise content management system is that it enables this information not only to be captured, but also to be retrieved, distributed and preserved, allowing firms to improve their business processes and decision making capabilities, (Laudon & Laudon, 2006). Employees are trained in groups through computer based distance learning, and are rewarded for using and contributing to document databases. The reuse of knowledge in codification therefore saves work, reduces communications costs, and allows the company to take on more projects. As a consequence, firms such as Ernst&Young have been able to grow at rates of 20% or more in recent years, with worldwide consulting revenues increasing from $1.5 billion in 1995 to $2.7 billion in 1997 (p.5), showing the prospective benefits of using codification to manage knowledge.

By contrast, the personalisation approach is used "if companies provide highly customized solutions to unique problems" so that "knowledge is shared through person to person contacts, where the chief purpose of computers is to help people to communicate," (Hansen, Nohria & Tierney, 1999) This approach ultimately supports the view that individuals hold knowledge. In the research on management consultancy firm McKinsey, the main aim of personalization was to "provide analytically rigorous advice on high level strategic problems by channelling individual expertise". The personalization strategy therefore relies on the logic of "expert economics", where the focus is on sustaining high profit margins via charging large fees for expert strategic help. The KM strategy focuses on a "person to person" knowledge transfer; this is where networks are developed to link people so that tacit knowledge can be shared. In the example of McKinsey, knowledge was transferred in brainstorming sessions and one on one conversations, where consultants "collectively arrived at deeper insights" through communication and collaboration, (p.3). The role of IT is therefore to invest moderately in IT, with the primary purpose of it being to facilitate conversations and the exchange of tacit knowledge. At McKinsey, "networks of people" were developed, through communication mediums such as the phone, and intranets with capabilities for email, instant messaging and videoconferencing as well as face to face. Directories of experts were also created, allowing consultants to find one another. Such knowledge network systems help to address the problem of knowledge existing in different locations, for example when knowledge predominantly resides in tacit form, embrained in the memory of expert individuals within the firm. Expertise location and management systems as such therefore help to overt knowledge, fostering an environment for communication and collaboration. In this approach, the role of HR is to train employees through one on one mentoring sessions and rewarding them when knowledge is directly shared with others. At McKinsey, a culture is promoted whereby "consultants are expected to return phone calls from colleagues promptly," all in aid of encouraging a collaborative environment. In organisations as such, where highly customised solutions are needed to problem-solve, often a solution is not easily reached. However, by creating an environment where knowledge can be shared, there are increased opportunities for communication exchange between individuals and teams which can hence improve the problem of situational knowledge, as collaboration can allow teams to come up with new solutions collectively. As Boisot (1998) points out, this communication allows co-presence without co-location which is highly advantageous for multinational firms collaborating across a global scale. Although the process of sharing tacit knowledge as such is time consuming, expensive, and slow, McKinsey's high calibre solutions allow them to charge much higher prices than firms offering more standardized services do. For instance, in 1997, daily fees for a McKinsey consultant were on average more than $2,000, compared to fees of approximately $600 at Andersen Consulting, a firm offering standardized solutions through codification, (p.5). This demonstrates how personalisation can also be an effective and profitable approach for managing knowledge. This study demonstrates the importance of IT for facilitating knowledge management and is first-rate in trying to eliminate the many problems associated with the nature of knowledge.

In conclusion, it is clear to see that knowledge is a multi-faceted concept, with each dimension posing managerial problems, particularly due to the nature of tacit knowledge. Such problems in maintaining, locating and applying knowledge have led to systematic attempts to manage knowledge. As seen in the examples of two international consultancy firms, Ernst & Young and McKinsey, knowledge can be managed using the codification or personalisation approaches. These examples highlight that advancement in IT has indeed been a beneficial factor in increasing the transparency of an organisation and allowing people to collaborate more effectively, thus enhancing business operations. However, I would argue that IT systems implementation is but a small part of KM and that it is equally important that there is an organisation-wide understanding of a firm's knowledge, if an organisation is to use its knowledge to ensure competitive advantage.