Knowledge Management -
Behind the Buzz

Skeptics have predicted that this fuzzy branch of management science is merely a fad. But its fast growth in corporate America and Europe is proving them wrong.

by Louisa Wah

knowledge management [n.] 

1. the practice of actionable value to information by capturing, filtering, synthesizing, summarizing, storing, retrieving and disseminating tangible and intangible knowledge.

2. developing customized profiles of knowledge for individuals so they can get at the kind of information they need when they need it. 

3. creating an interactive learning environment where people transfer and share what they know and apply it to create new knowledge

Knowledge management has become a red-hot buzzword in management circles since its emergence in the early 1990s. There's been much hype around the practice, which has led serious managers to ask if it has any substance. 

A preliminary assessment of the results of knowledge management in practicing companies shows that it is real and very much alive, even though some companies are capitalizing on the concept in name only.

No doubt, many companies have jumped on the knowledge-management bandwagon without understanding the meaning and implications of this fuzzy branch of management science. In fact, most companies are still grappling with the concept today. And technology companies have cloaked themselves in the new cloth of knowledge management to boost the sales of existing data management products. It's no surprise, then, that scores of definitions for knowledge management exist.

Despite the many interpretations, a good number of companies have grasped the essence of knowledge management and successfully leveraged it to produce concrete business results. In particular, large international companies have found knowledge management useful in facilitating interactive flows of knowledge across the organization worldwide.

To the critics who dismiss knowledge management as just a fad, here's what practitioners have to say. "Knowledge management is not about yet another operational efficiency fad. It is about the strategy of the company, says Karl-Erik Sveiby, the founding father of the concept of "knowledge organizations. Dan Holtshouse, director of corporate business strategy at Xerox Corp., Rochester, New York, says with a positive tone, "There is something very real."

Holtshouse, the firm's knowledge initiative leader, says the company has looked at 60 to 70 case studies of companies and found they have been doing real work around the subject. "I'm very sympathetic to the skeptics because they either haven't engaged in the subject yet or may be engaged in the wrong way, he says. "Thirdly, they are not too adaptive to change. So there's a certain resistance.

As the understanding of knowledge management gradually increases, fewer and fewer companies consider it a passing trend. According to a KPMG knowledge management study conducted in early 1998, only 2 percent of respondents considered knowledge management to be a fad, compared with nearly 33 percent in a similar survey done in 1997.

A Management Review survey conducted late last year confirmed a confidence in knowledge management as a strategy that will offer a competitive edge in the future (see page 20 for our survey results). Although as many as 63 percent of the 1,626 U.S. respondents said they did not have a knowledge management program in place in their organizations, the majority (79 percent) believe knowledge management is vital to their companies' future success. Apparently, it's not just another buzzword.

"If you can't measure it, it's not worth doing it."

~Kent Greenes, British Petroleum

The central theme of knowledge management is to leverage and reuse resources that already exist in the organization so that people will seek out best practices rather than reinvent the wheel. Companies usually take one or more of the following approaches to knowledge management to achieve this objective:

• Capturing, storing, retrieving and distributing tangible knowledge assets, such as copyrights, patents and licenses.

• Gathering, organizing and disseminating intangible knowledge, such as professional know-how and expertise, individual insight and experience, creative solutions and the like.

• Creating an interactive learning environment where people readily transfer and share what they know, internalize it and apply it to create new knowledge.

To become a true "knowledge-creating company, an organization must complete a "knowledge spiral, says lkujiro Nonaka, Xerox distinguished professor in knowledge and dean of the graduate school of Japan Advanced Institute for Science and Technology. That spiral goes from tacit to tacit, from explicit to explicit, from tacit to explicit arid, finally, from explicit to tacit. Thus, tacit knowledge must be articulated and then internalized to become part of each individual's knowledge base. The spiral starts all over again when completed, only at higher and higher levels, extending the knowledge application to other areas of an organization.

Nonaka pointed out in his book, The Knowledge-Creating Company (Oxford, 1995), that Japanese companies like Honda, Canon, Matsushita and Sharp have long practiced this knowledge-creating principle. Western managers, however, believe that only quantifiable data is useful and that companies are information-processing machines.

This has changed during the 1990s, when some leading companies in the West explored and evolved into learning companies. Technology has played an important role in this process by making the systematic storage and dissemination of information a feasible and efficient proposition (see "Thirst for Knowledge on page 10).

It is dangerous, however, to believe that knowledge management can be achieved by technology and technology alone. The people side of the equation is paramount to knowledge management's long-term viability and its value to companies.

Rory Chase, chief knowledge officer of Teleos, an independent research and advisory organization based in Bedford, United Kingdom, says information technology is just part of the puzzle. "IT provides the framework but doesn't provide the content, he says. "It's a real people-based issue. Yes, IT is an enabler, but IT in and of itself won't get something out of somebody's head."

Often, companies that fail in their knowledge management initiatives do not recognize the difference between information and knowledge, says Holtshouse. In contrast to information management, knowledge management is about adding actionable value to information by filtering, synthesizing and summarizing it and developing personal usage profiles to help people get at the kind of information they need to take action on.

But the key difference between the two is the people aspect. "There's a desire by information management to replace the worker to automate the worker out ...whereas knowledge management says, ' Who has the knowledge? Who is creating knowledge?' It's the worker. The people always have to be in the picture," Holtshouse says.

Arthur Andersen has developed a tool that outlines 27 best practices in knowledge management. According to Tom Elsenbrook, a partner responsible for the firm's North American energy consulting practice, only one of the top six factors needed to implement knowledge management effectively is technology-related. The most important factor, cited by 91 percent of interviewees, is management openness and trust.

Although companies use a variety of approaches, processes and technologies to share knowledge across the organization, knowledge management has brought tangible benefits to them. For instance, among the Management Review survey respondents who say their companies have effective programs, 78 percent said it has augmented customer satisfaction levels, 60 percent said it has improved employee satisfaction, and 59 percent said it has led to product or service innovations. It should be noted, however, that only 36 percent said knowledge management has lowered customer costs, and only 30 percent said it has helped reduce the company's time to market.

In addition, 60 percent of companies with effective programs say intangible assets are reflected in their market value. So knowledge management programs do bring financial value to companies.

What follows are some companies that have used knowledge management at a strategic level to increase their competitive advantage.

Defining Goals 

British Petroleum, among other oil and gas companies, is one of the most advanced practitioners of knowledge management in the world. The practice has resulted in significant business improvements. According to Kent Greenes, head of knowledge management, the amount of added value that can be attributed directly to the initiative is around $100 million.

One example is the reduced cost of constructing European retail sites. By sharing knowledge among project engineers in Europe, a joint venture with Bovis ended up saving $74 million. This knowledge is now being leveraged on a global scale by project engineers in the new markets of Venezuela and Japan. Similar increases in performance can be found in BP's business restructuring, oilfield drilling, polyethylene production and more. The company estimates that its ongoing knowledge management efforts will add another $400 million in value to sustainable projects.

Greenes explains that these positive returns are a result of a clear corporate strategy, with each knowledge management initiative targeted at a real business need. The clearly defined objectives have made the measurement of results much easier, which in turn helps convince senior management of the benefits of knowledge management initiatives. Keeping track of the outcomes is extremely important in their pursuit. As Greenes puts it, "If you can't measure it, it's not worth doing it."

BP's knowledge management started in 1994 as an informal program, called "virtual teamwork," which followed on the heels of a restructuring of the organization into smaller, more autonomous units. Under the visionary lead of top management, the program evolved into a formal one. The objective is to make the reuse of existing knowledge a routine way of doing work, and to create new knowledge to radically improve business performance.

The company's knowledge management approach has a simple framework, encompassing a cycle of learning processes "before," "during" and "after" any event. When the learning processes result in business lessons, peers in communities of practice distill them and define the best practices. Finally, both specific and generic lessons are incorporated into "knowledge assets" on the corporate intranet.

In addition, an employee-driven yellow pages on the corporate intranet now contains information about 10,000 employees, enabling everyone to find out "who knows how." Some 1,500 people also have video-conferencing and application-sharing technologies on their desks to exchange knowledge with other BP associates, partners and suppliers. More than 20 of the 100 business units of the BP/Amoco merger are using these processes and tools on a regular basis. And about a quarter of BP's business units now have "knowledge guardians who help their business teams harvest newly created knowledge.

Expertise That Sells 

Professional services firms are another group that has gained much insight about knowledge management. Ernst & Young and Arthur Andersen are some of the leading consulting firms that leverage their own knowledge in this area to help client companies implement the practice.

At Ernst & Young, whose chief knowledge officer, John Peetz, coined that strategic title (and hence, formal function) back in 1994, knowledge management as an internal practice now has a dedicated team of about 300 worldwide. Meanwhile, different practice areas in the firm have started to offer knowledge management services. The knowledge-based business solution practice, for example, provides consulting services to knowledge-intensive businesses and companies that want to engage in e-commerce.

Within E&Y, the management consulting practice has led the way in the firm's own knowledge management initiative, according to Ralph Poole, a director of E&Y's Center for Business Knowledge. For about six years now, it has actively engaged in experience sharing, in which consultants leverage what others learn from an engagement and apply that knowledge to the problems of other clients.

For example, after an SAP implementation in a client company, a community of interest (COIN) would look at what was learned and pick the most relevant issues to be published into "PowerPacks," a container of knowledge that has everything a practitioner would need to know to execute the work. This way, when consultants face a similar problem or work in a similar industry, they can accelerate the implementation process.

There are 30 COINs made up of teams from different industry lines and business process solutions. These are the people who determine the actual content of the PowerPacks.

Over the years, knowledge sharing has been the unsung hero of much of the firm's improved business performance. From 1993 to 1998, for example, the management consulting practice grew more than 300 percent in revenues. During the same period, the head count increased only 200 percent. According to Poole, the gap represents increasing productivity: "We can at least attribute a portion of that to knowledge management-we are getting more efficient over time."

~Dan Holtshouse, Xerox

Beyond Data

At Xerox Corp., knowledge managemerit isn't all about machines and technology, as one might expect. It's 90 percent social process and 10 percent infrastructure. According to Holtshouse, Xerox's knowledge management initiative aims to use technologies to improve service quality and productivity.

To support that objective, the company launched Eureka, a "social tactical system," in 1996. The system links 25,000 field service representatives with laptops and the Internet, using a common documentation method, to facilitate lateral communication.

Eureka was developed as a result of 18 months' study by anthropologists, behavioral scientists and engineers, and the system was actually inspired by the way technicians interact with each other to share their knowledge. A study at the Xerox Palo Alto Research Center (PARC) showed that these technicians use "war stories" to teach each other to diagnose and fix machines. Drawing on that same concept, Eureka supports Xerox's techni cians in sharing their sto ries in the form of electronic tips.

What's unique about the system, says Holtshouse, is that it does not need a dedicated staff to collect information and write up stories or scripts- a time-consuming effort. Eureka is self-sustaining; the field service reps create and maintain the knowledge base by contributing and renewing all the tips on how to fix machines. Formal review committees then validate the tips.

The tangible results of the lateral communication made possible by Eureka include a 5 percent savings on both parts and labor. Service reps access more than 5,000 tips a month, and new tips are generated at the rate of about one per 1,000 service calls.

What makes the system self-sustaining is the recognition employees receive for participating in the process. Each time a rep contributes a tip, his or her name goes on the system. This motivates people to take responsibility for building the common knowledge base. "Understanding what motivates them was key to get the thing going," Holtshouse says. "Money was one of the considerations, but recognition seems to [work] the best."

Altruistic Sharing 

The benefits of knowledge sharing aren't limited to the private business terrain. Nonprofit organizations also can use it in achieving their missions. The World Bank, for example, is leveraging global knowledge sharing to attain its goal of becoming a clearinghouse for expertise on sustainable development.

Stephen Denning, program director of knowledge management, says, "The mission of the World Bank is to alleviate poverty and improve the living standard of the poor countries of the world. Knowledge management is helping us to accomplish the mission."

One example occurred last August, when the governor of Pakistan contacted the World Bank office in his country to ask about new technology for Pakistan's deteriorating highway system. Denning says that in the past, the bank normally would have assembled a team to visit the country and write a report on the issue, which could take months.

But what actually happened was quite different. The task manager contacted the "community of practice" within the bank that consists of highway experts, asking for urgent advice. A highway expert working at the World Bank sector in Jordan found that his country was using a technology that could be applied in Pakistan. On the same day, someone in Argentina was working on a book about a technology being used in Asia, South America, Africa and Australia. Meanwhile, one of the World Bank's outside partners in South Africa said the country had been using the technology for decades. So he shared the pros and cons with the task manager, who was able to quickly gather global experience and apply it to Pakistan. Finally, this knowledge is being captured in a knowledge base.

Currently, the World Bank has more than 110 communities of practice around the world that are in the process of connecting with each other and improving the quality of the knowledge base. Denning says the organization s vision is to share its knowledge about development externally by 2000, so that all who are interested will be able to access it via the Internet.

Culture Shifters 

These organizations have profited from knowledge management because they don't simply rely on technological solutions. They recognize the importance of the social elements and human connection needed for knowledge sharing. They also acknowledge that they have to overcome many cultural and behavioral obstacles in the implementation process, and they try to create a favorable environment to override those obstacles.

One major problem with knowledge management is people's tendency to hoard knowledge. Even those who don't intend to do so simply may not be motivated to share what they know. This is especially true when it comes to tacit knowledge, which can't be easily articulated.

Limited vision is another problem that can frustrate knowledge man agement efforts. It's not that people don't want to share what they know, observes Jim Allen, director of knowledge management at Dow Chemical, Midland, Michigan. "It's that they don't know there is somebody who needs to know the information, or they don't know who needs to know. It's a question of management facilitating the process of sharing," he says.

While the last problem can be solved with technologies such as electronic corporate yellow pages, the obstacle of individual reluctance can only be tackled by looking into people's psychology. Larry Prusack, managing prin cipal at the Boston-based IBM Consulting Group, says he has worked with 20 firms that have put together electronic yellow pages and other systems, but very few of them have seen any payback. The reason is that they try to use technology alone to induce people to share. Contrary to popular belief, he says, incentives are not a lasting approach.

"[Knowledge sharing] happens only when the social norms are conducive to it. Something that is to be incented (sic) usually is not going to happen," says Prusack.

The crux of the problem is that knowledge itself is a scarce resource, he says. It takes a long time to understand something, be it customers, technology or the market. "If it's scarce, then there's more demand than supply. People don't [fail to] share because they are nasty or opportunistic. They don't share because they are just overwhelmed with requests. There's no contingent value in [sharing]. No one has any time." In short, people don't have the "space" -cognitive, physical and social-to really reflect on what they know with someone else, Prusack says.

The Space to Share

Making space for creativity  needn't be difficult. A Japanese pharmaceutical company, for example, has a tea room where researchers are required to sit down, drink tea and discuss their projects with fellow scientists. Amid this socializing process, knowledge is exchanged.

Of course, such a space doesn't have to be physical. Buckman Laboratories International Inc., for example, has a virtual room called the "Break Room," where people socialize by posting jokes, sales notices, recipes, birth announcements and the like. Melissie Rumizen, assistant to the company's chairman, says this is necessary because "we need to get people to function as a community. That's why companies hold cocktail receptions, lunches and dinners at business events. People have to connect as people to work well together."

Employees' failure to pass on what they know-due to resistance or busy schedules-is exacerbated by years of corporate reengineering, downsizing and mergers and acquisitions, leaving many organizations too lean to exploit knowledge management to the fullest.

According to the KPMG knowledge management research, 40 percent of respondents said that people do want to share knowledge but do not have the time to do so. Under such circumstances, what can companies do? "If one understands knowledge as a human faculty, says Sveiby, "management of the space for knowledge creation becomes a crucial issue." He suggests some practical approaches to create the space for knowledge to thrive:

• CEOs should highlight the simple fact that it is the creative capacity of our minds that will make or break the company.

• Allow and encourage time for reflection. Ask yourself: When did you last allow your colleagues to see you "sit and do nothing ? Encourage all to sit at their desks and relax. Do nothing for at least 10 minutes in the morning and 10 minutes in the afternoon. The brain's capacity to create is amazing-once it is allowed to do so.

• Redesign the office and reallocate spaces based on creative contribution and usage. Ask these questions: Do you see your office as an assembly line or a space for knowledge creation? Is it an overhead burden or an infrastructure for revenue creation? Is the coffee machine tucked away in an unsocial corner? And are the best spaces for creativity-the corner offices with lots of natural light and beautiful decorations-allocated to people who are never there? If so, your office is a poor space for knowledge creation.

Besides having a reflective space, employees must take ownership of knowledge for its management to be effective, says Peter Novins, a partner in Ernst & Young's knowledge-based business solution practice. "They are the beneficiaries and thus are responsible for making sure the knowledge base remains good and constantly useful," he says.

This is a powerful message because if people are not happy with the content, they have no one to blame but themselves, he says. Taking ownership of knowledge also helps keep the expertise much more current and speeds up the application of new ideas, because the people responsible for collecting the knowledge are the same ones who apply it.

There are other cultural obstacles, one being the business culture in the literal sense. As with marketing products overseas, sharing knowledge across cultural borders may require you to make certain adjustments. Ernst & Young, for example, is expanding its knowledge management initiative to its overseas offices. In Europe, says Poole, where business is much more complex than in the United States, it takes some time to reflect on how to apply what U.S. practitioners have learned to businesses that are operating in a different context. "There's a bit of work required to make it relevant and make it easy to assimilate and apply," he says. To solve the problem, the firm has developed "knowledge objects," which are templates of core insights applicable in any cultural environment.

Along with cultural obstacles come language barriers. Xerox has incorporated software-assisted translation into its Eureka system so that service reps can input and read tips in their native languages.

Ultimately, companies gain competitive advantage not from the amount of knowledge they manage to gather, but from the quality of its use. Novins says, "I think there is a misperception in a lot of quarters that competitive advantage comes from the biggest knowledge base. The most able sharing capability is one that includes the culture and behavior motivators, a culture that celebrates sharing and teaming."

Sidebar

IS " KNOWLEDGE MANAGEMENT" AN OXYMORON?

Most experts and practitioners in the field agree that "knowledge management" is a misnomer. Knowledge can't really be "managed." But rather than dwelling on the semantics, they approach the subject with a pragmatic attitude because they believe it has real substance.

The founding father of knowledge management, KarI-Erik Sveiby, acknowledges that it's a poor term. "It suggests that knowledge is an object that can be handled like a tangible good. It is not. Knowledge is a human faculty," he says.

To him, the best way to change the organizational culture to one that is " knowledge focused" is through action. And since simulation is the next best thing to action in real life, he has designed a simulation program, called Tango, together with a Swedish company, Celemi, to help managers "see" their business from a knowledge perspective.

T. Irene Sanders, principal of Sanders & Co., a strategic planning consulting firm in Evergreen, Colorado, says the term "knowledge management" is wrongly used, because it conveys the idea of control. "Knowledge about your business is a constantly evolving kind," she says. "You can't control it, but you can use it."

Xerox's Dan Holtshouse is not a big fan of the term for the same reason that it conveys a limited scope. But he has a practical view of the issue: "We believe you can put into place systems and initiatives to help manage the knowledge that's important for your business. That doesn't mean you manage knowledge inside people's head. But you manage the infrastructure and work environment to help exchange, flow and capture what people know."

Stephen Donning of the World Bank says, "The term is misleading, because you cannot manage knowledge any more than you manage love or friendship or religion. On the other hand, KM has come to me as an organic and more holistic way of sharing knowledge across organizational boundaries."  

~L.W.

PHILOSOPHY: Every knowledge initiative must he targeted at a real business need and aim to improve business performance.

PRACTICE: Knowledge managers seek out and codify lessons learned in their business units. A community of practice distills these lessons on the corporate Intranet.

BBENEFITS: Significant cost savings in site constructions and improved efficiency in oilfleld drilling and other projects.