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LY MF TE ESSENTIALS ofKnowledge Management The Essentials Series was created for busy business advisory and corporate professionals.The books in this series were designed so that these busy pro- fessionals can quickly acquire knowledge and skills in core business areas. Each book provides need-to-have fundamentals for those profes- sionals who must: • Get up to speed quickly, because they have been promoted to a new position or have broadened their responsibility scope • Manage a new functional area • Brush up on new developments in their area of responsibility Add more value to their company or clients • Other books in this series include: Essentials ofAccounts Payable, Mary S. Schaeffer Essentials of Capacity Management, Reginald Tomas Yu-Lee Essentials of Cash Flow, H.A. Schaeffer, Jr. Essentials of Corporate Performance Measurement, George T. Friedlob, Lydia L.F. Schleifer, and Franklin J. Plewa, Jr. Essentials of Cost Management, Joe and Catherine Stenzel Essentials of CRM:A Guide to Customer Relationship Management, Bryan Bergeron Essentials of Credit, Collections, andAccounts Receivable, Mary S. Schaeffer Essentials of FinancialAnalysis, George T. Friedlob and Lydia L.F. Schleifer Essentials of Intellectual Property, Paul J. Lerner and Alexander I. Poltorak Essentials of Patents ,Andy Gibbs and Bob DeMatteis Essentials of Payroll Management andAccountinSteven M. Bragg Essentials of Shared Services, Bryan Bergeron Essentials of Supply Chain Management, Michael Hugos Essentials of Trademarks and Unfair Competition, Dana Shilling Essentials ofTreasury and Cash Management, Michele Allman-Ward and James Sagner For more information on any of the above titles, please visit www.wiley.com. ESSENTIALS ofKnowledge Management Bryan Bergeron John Wiley & Sons, Inc. Copyright © 2003 by JohnWiley & Sons, Inc.All rights reserved. Published by JohnWiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, JohnWiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, e-mail: email@example.com. Limit of Liability/Disclaimer of Warranty:While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials.The advice and strategies con- tained herein may not be suitable for your situation.You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800-762-2974, outside the United States at 317-572-3993, or fax 317-572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information aboutWiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data Bergeron, Bryan P. Essentials of knowledge management / Bryan Bergeron. p. cm. -- (Essentials series) Includes index. ISBN 0-471-28113-1 (pbk. : alk. paper) 1. Knowledge management. I.Title. II. Series. HD30.2 .B463 2003 658.4'038--dc21 2002155501 Printed in the United States of America. 10 9 8 7 6 5 4 3 2 1 To Miriam Goodman Contents Preface ix Acknowledgments xv 1 Overview 1 2 Knowledge Organizations 35 3 Knowledge Workers 58 4 Process 83 5 Technology 111 6 Solutions 134 7 Economics 153 8 Getting There 172 Further Reading 191 Glossary 193 Index 203 vii Preface ssentials of Knowledge Management is a practical survey of the field of Knowledge Management (KM)—a business optimization strategy E that identifies, selects, organizes, distills, and packages information essential to the business of the company in a way that improves employee performance and corporate competitiveness. The preservation and packaging of corporate knowledge (i.e., information in the context in which it is used) is especially relevant today, given that the majority of the service-oriented workforce is composed of knowledge workers.To compete successfully in today’s economy,organizations have to treat the knowledge that contributes to their core competencies just as they would any other strategic, irreplaceable asset. The aim of this book is to examine approaches to Knowledge Management that contribute to corporate competitiveness, and those that don’t.The book assumes an intelligent CEO-level reader, but one who is unfamiliar with the nuances of the KM field and needs to come up to speed in one quick reading.After completing this book,readers will understand how their business can be optimized using KM techniques and strategies. Moreover, readers will be able to converse comfortably with KM professionals, understand what to look for when hiring KM staff and consultants, and understand the investment and likely returns on various KM approaches. To illustrate the practical, business aspects of Knowledge Management in an easily digestible fashion,each chapter contains a vignette that deals with key technical, cultural, or economic issues of the technology. ix Reader Return on Investment After reading the following chapters, the reader will be able to: •nomic, technical, and corporate culture perspectives, including what KM is and isn’t. •Have a working vocabulary of the field of Knowledge Management and be able to communicate intelligently with Understand the trade-offs between the commercial options •available for a KM implementation. •Understand the significance of Knowledge Management on the company’s bottom line. •Understand thM relationship between Knowledge Management And other business optimization strategies. •Have a set of specific recommendations that can be used to •establish and manage a KM effort. •Understand the technologies, including their trade-offs, that can be used to implement Knowledge Management in the corporation. •how to recognize a successful KM effort.y it works, and Organization of This Book This book is organized into modular topics related to Knowledge Management. It is divided into eight chapters. Chapter 1: Overview The first chapter provides an overview of the key concepts,terminology, and the historical context of practical Knowledge Management in the workplace. It illustrates, for example, how every successful organization uses Knowledge Management to some degree, albeit perhaps not in a x Team-Fly sophisticated, formalized way. This chapter also differentiates between knowledge as an organizational prc oess versus simply a collection of data that can be stored in a database. Chapter 2: Knowledge Organizations Taking the perspective of the corporate senior management,this chapter explores the implications of embracing Knowledge Management as an organizational theme. It explores the role of chief executive as chief knowledge officer, how any KMinitiative is primarily one of corporate culture change,what can be expected through application of KM strate- gies in a large organization, general classes of KM initiatives—including gaining knowledge from customers,creating new revenues from existing knowledge,and capturing individual’s tacit knowledge for reuse—as well as a review of the predictors of a successful initiative. Chapter 3: Knowledge Workers This chapter explores KnowledgeManagement from the employees’per- spective.Topics include dealing with employee resistance to the increased overhead of not only performingtheir jobs but taking time to document their behavior for others, addressing the potential reward for a job well done with decreased job security,the importance of creating employee recognition and reward systems to encouraging employee participation in a KM initiative,and ways to use KM techniques to enhance employee effectiveness. Chapter 4: Process This chapter focuses on Knowledge Management as a process. Topics include process reengineering, competency measurement, how to best apply collaborative systems, approaches to unobtrusive knowledge cap- ture, filtering and refining knowledge, methodolog ies for applying knowledge for decision support, and how Knowledge Management relates to traditional business processes and business models. xi Chapter 5: Technology This chapter explores the many computer and communications tech- nologiesthat can be used to enhance the organizational and behavioral aspects of a Knowledge Management initiative.Included are a survey of technologies for knowledge collection (e.g., data mining, text summa- rizing, the use of intelligent agents, and a variety of information retrieval methodologies), knowledge storage and retrieval (e.g., knowl- edge bases and information repositories),and knowledge dissemination and application (e.g., intranets and internets, groupware, decision sup- port tools, and collaborative systems). Chapter 6: Solutions This chapter looks at the various solutions offered by vendors in the Knowledge Management market.Topics includd eefining assessment met- rics of performance, industry standards and best practices, and how to assess the impact of a KM initiative on qualitative factors surrounding organization-wide change of corporate vision, values, and behaviors. Chapter 7: Economics This chapter explores the financial aspects of Knowledge Management, from a return-on-investment perspective.Topics include pricing models for information infrastructure development,overhead costs,contractual issues,and hidden costs of Knowledge Management,and how to justify the cost of investing in new technologies.The chapter also explores the knowledge economy in terms of the knowledge value chain. Chapter 8: Getting There The final chapter provides some concrete examples of the resources, time,and costs involved in embarking on a practical Knowledge Manage- ment effort. Topics include implementation challenges, working with vendors, achieving employee buy-in, including how to shift corporate xii culture from knowledge sequestering to knowledge sharing, employee education, realistic implementation timelines, and managing risk. The chapter ends with a look to the future of Knowledge Management as it relates to information technology, process, and organizational change. Further Reading This section lists some of the more relevant works in the area of Knowl- edge Management,at a level appropriate to a chief executive or upper- level manager. Glossary The glossary contains words defined throughout the text as ell the most common terms a reader will encounter in the Knowledge M anagement literature. H ow to Use This Book For those new to Knowledge Management, the best way to tackle the subject is simply to read each chapter in order; however, because each chapter is written as a stand-alone module, readers interested in, for example,the economics of Knowledge Management can go directly to Chapter 7,“Economics.” Throughout the book,“In the RealWorld” sections provide real- world examples of how Knowledge Management is being used to improve corporate competitiveness and ability to adapt to change. Similarly,a“Tips & Techniques”section in each chapter offers concrete steps that the reader can take to benefit from a KM initiative.Key terms are defined in the glossary.In addition,readers who want to delve deeper into the business, technical, or corporate culture aspects of Knowledge Management are encouraged to consult the list of books and publica- tions provided in the Further Reading section. xiii Acknowledgments I would like to thank my enduring editorial associate,Miriam Goodman, for her assistance in creating this work.In addition,special thanks are in order to my editor at JohnWiley & Sons,Sheck Cho,for his insight and encouragement. xv CHAPTER 1 Overview eaders prepared to add a powerful new tool to their arsenal of com- petitive business strategies may be surprised to discover that Knowl- R edge Management (KM) has more to do with ancient civilizations than with some recent innovation in information technology (IT). Consider that,since antiquity,organized business has sought a competitive advantage that would allow it to serve customers as efficiently as possible, maximize profits,develop a loyal customer following,and keep the com- petition at bay, regardless of whether the product is rugs, spices, or semi- conductors.Beginning about 15,000 years ago,this advantage was writing down the selected knowledge of merchants,artisans,physicians,and gov- ernment administrators for future reference.Writing was used to create enduring records of the society’s rules,regulations,and cumulative knowl- edge,including who owed and paid money to the largest enterprise of the time—the government. In Mesopotamia about 5,000 years ago, people began to lose track of the thousands of baked-clay tablets used to record legal contracts,tax assessments, sales, and law.The solution was the start of the first institu- tion dedicated to Knowledge Management, the library. In libraries, located in the center of town, the collection of tablets was attended to by professional knowledge managers. An unfortunate side effect of this concentration of information was that libraries made convenient targets for military conquest. Even though war had the effect of spreading writings and drawings to new cultures, access to the information they contained was largely 1 restricted to political and religious leaders. Such leaders represented the elite class, who either understood the language in which the scrolls or tablets were written or could afford to have the works translated into their native tongue. Things improved for the public in theWest a little over five centuries ago, with the invention of movable type and the printing press.With the Renaissance and prosperity came a literate class and the practice of printing in the common tongue instead of in Latin. In the world of commerce, the expertise of many professions con- tinued to be passed on through apprenticeship,sometimes supplemented by books and other forms of collective memory. This concentration of knowledge limited actual manufacturing to relatively small shops in which skilled craftsmen toiled over piecework.Things changed with the introduction of the assembly line as a method of production.The indus- trial revolution was possible largely because rows of machines—not an oral or written tradition—provided the structural memory of the process involved in the production of guns,fabrics,machinery,and other goods whose design enabled mass production. No longer was a lengthy apprenticeship,or literacy,or even an understanding of the manufacturing process required for someone to quicklyachieve acceptableperformance at a task. Anyone, including women and children with no education, could learn to refill a bobbin with yarn,keep a parts bin filled,or operate a machine in a few hours—and keep at it for 12 hours at a time, seven days a week. For the first time, productivity could be measured, bench- marks or standards could be established, and processes could be opti- mized. As a result,productivity increased,goods became more plentiful, and they could be offered to the masses at an affordable price while maintaining a healthy profit margin for the company and its investors. However, knowledge of the overall process and how individual workers contributed to the whole was closely held by a handful of assembly-line designers and senior management. 2 Modern business in the postindustrial U.S. service economy is largely a carryover from this manufacturing tradition, especially as it relates to accounting practices and corporate valuation.For example,the govern- ment,a silent partner in every business venture,recognizes the purchase price and depreciation schedule of physical assets, but not the processes or knowledge held in the minds of workers. Similarly, the manner in which employees are assigned positions in the modern corporation reflects the industrial era in which individual workers have little knowl- edge of—or voice in—the overall business model. It’s common, for example, for large rooms crammed with cubicles to house hundreds of workers who mindlessly process printed or electronic documents.These workers manipulate and validate data, according to easily learned rules established by management. As a result, the knowledge of the overall process resides in the minds of senior management, and employees for the most part are treated as if they were easily replaceable assembly-line workers in a manufacturing plant. At higher levels of the knowledge worker hierarchy, university degrees and certificates from various organizations or guilds provide the self-imposed labels that managers and professionals use to qualify for one of the predefined positions in the matrix of the organization.These knowledge workers have more of an overall picture of the business than lower-level front-line workers do,but there is likely duplication of mis- takes in different departments since these workers may not have a process in place to share knowledge of best practices. For example, professionals in multiple departments with the organization may be experimenting with outsourcing, each discovering independently that the promised savings are far less that the popular business press suggests. Despite the parallels in front-line employees working with data instead of textiles or iron,the reality of the modern corporate workplace also contrasts sharply with what was considered by employees and man- 3 agement as a permanent condition until only a few decades ago.The sit- uation of lifetime employment offered by large manufacturing plants in the steel, petroleum, and automobile industries during the latter half of the twentieth century is virtually unheard of today,even with labor unions. Given the volatility of the economy and mobility of the workforce,new entrants into the workforce can expect to work with five or more firms during their lifetimes. Even in Japan, where lifetime employment was once an unwritten rule,major corporations routinely downsize thousands of workers at a time. Y While industrializatLon may have been detrimental to the environ- ment and some socialFinstitutions, it isn’t responsible for the current pressure on businesses to be more competitive. Rather, economic volatility,high employee turnover,international shifts in political power, global competitAon, and rapid change characterize the modern eco- nomic environEent. As a result,the modern business organization can’t compete effeTtively in the marketplace without skilled managers and and all the processes and technologies involved in the business, including information technology. EXHIBIT 1.1 Use Modification Access Acquisition Disposal Repurposing/ Archiving Transfer 4 ® Team-Fly Managing information throughout the ages,whether expressed in the form of figures cut into clay tablets,rows of machines on a factory floor, or a roomful of cubicles in which service providers handle electronic documents, entails a web of eight interrelated processes (see Exhibit 1.1). Consider the eight processes in the context of a multimedia pro- duction company: 1. Creation/acquisition. The multimedia—some combination of images, video, and sound—is either authored from scratch or acquired by some means.For example,the multimedia company many create a series of images depicting a new manufacturing process for a client. 2. Modification. The multimedia is modified to suit the immediate needs of the client. For example, the raw multimedia may be reformatted for use in a glossy brochure. 3. Use. The information is employed for some useful purpose, which may include being sold and distributed. For example, the brochure is printed for distribution by the client. 4. Archiving. The information is stored in a form and format that will survive the elements and time,from the perspectives of both physical and cultural change. The multimedia included in the brochure may be burned onto a CD-ROM and stored in a fire- proof safe off site, for example. 5. Transfer. The information is transferred from one place to another. The electronic files of the brochure may be distributed via the Internet to clients in corporate offices around the globe. 6. Translation/repurposing. The information is translated into a form more useful for a second group of users or for a new purpose. The images used in the brochure are translated into web- 5 compatible images to create an online brochure on the client’s intranet web site. 7.Access. Limited access to the translated or original information is provided to users as a function of their position or role in the organization. For example, managers in the client’s organization with the access codes and passwords to the password-protected web site can view the online brochure that describes the new manufacturing process. 8.Disposal. Information with no future value is discarded to save space and reduce overhead.When multimedia for a second brochure is created by the multimedia company,the files relating to the online and printed brochures are purged from the electronic system. However, printed and CD-ROM copies of the information are saved for reference or for the historical record. In addition to these individual steps, there is an underlying process for tracking the information in the system.For example,it’s possible for the original information to be archived while a modified version is being translated for another purpose. Given this historical perspective on information, society, and busi- ness, let’s begin the exploration of contemporary Knowledge Manage- ment with a definition, a review of KM principles, and a vignette to illustrate the concepts as they apply to business. D efinition The Holy Grail of Knowledge Management is the ability to selectively capture,archive,and access the best practices of work-related knowledge and decision making from employees and managers for both individual and group behaviors. For example, a manager may have knowledge of how to quickly procure parts from a supplier (individual behavior) as 6 IN THE R EAL W ORLD Knowledge Management in the Field One of the pioneers in the modern business knowledge manage- ment arena is the American Productivity and Quality Center (APQC). For several decades prior to APQC’s 1995 Knowledge Management Symposium, held in conjunction with Arthur Andersen Companies, most KM work was conducted in academic laboratories. Much of this work was performed in specific areas. For example, throughout the 1980s, research in Knowledge Management in medicine was carried out in the Decision Systems Group at Harvard Medical School, with funding from the National Library of Medicine. Today, many of the Fortune 1000 companies have ongoing KM proj- ects aimed at general and specific business functions. A partial list of these companies includes: Air Products & Chemicals Inc. Union Pacific Railroad Allstate Insurance Company Company U.S. Census Bureau Army Medical Department Bank of America U.S. Department of the Navy—Acquisition Reform Best Buy Office BHP Billiton U.S. Department of Veterans ChevronTexaco Affairs Corning Inc. U.S. General Services Administration Deere & Co. Dell Computer U.S. National Security Agency U.S. Naval Sea Systems Department of National Command Defense, Canada Intel Corp. U.S. Social Security Administration Northrop Grumman Raytheon Company World Bank Xerox Schlumberger Oilfield Services Shell E&P Xerox Connect Siemens AG (continues) 7 IN THE R EAL W ORLD (CONTINUED) Within these and other companies, the roles of Knowledge Manage- ment range from supporting customer relationship management (CRM) at Xerox to configuring custom computers at Dell Computer. In addition, there are a numerous KM initiatives in the knowledge- intensive vertical markets, including medicine, law, engineering, and information technology. well as how to work with other managers in getting policies pushed through the corporate hierarchy (group behavior). In practice, most KM practices fall short of this ideal. This is pri- marily because it’s virtually impossible to capture the thoughts, beliefs, and behaviors of a manager or employee in a way that is both economical and complete enough to provide another person—or machine—with enough quality information to make the same decisions, exhibit the same leadership principles, or perform the same complex tasks at the same level of performance.One of the first challenges in understanding exactly what practical Knowledge Management involves is agreeing on a definition. Part of the confusion arises because of how the term “Knowledge Management” is used by vendors who sell products that have very little to do with the ideal and more to do with relabeling prod- ucts initially directed at other markets.There is also confusion caused by terminology borrowed from the academic community regarding the use of knowledge in artificial intelligence research, much of which doesn’t apply to Knowledge Management. This book defines Knowledge Management from a practical business perspective. Knowledge Management (KM) is a deliberate,systematic business optimization strategy that selects, distills, stores, organizes, pack- ages, and communicates information essential to the business of a 8 company in a manner that improves employee performance and corporate competitiveness. From this definition,it should be clear that Knowledge Management is fundamentally about a systematic approach to managing intellectual assets and other information in a way that provides the company with a competitive advantage. Knowledge Management is a business optimiza- tion strategy, and not limited to a particular technology or source of information. In most cases, a wide variety of information technologies play a key role in a KM initiative, simply because of the savings in time and effort they provide over manual operations. Knowledge Management is agnostic when it comes to the type and source of information,which can range from the mathematical descrip- tion of the inner workings of a machine to a document that describes the process used by a customer support representative to escalate customer complaints within the business organization. Consider the example of the legal firm, whose senior partners create written templates (the information) for ease of creating specific documents. Such a firm has a KM system that can vastly increase its productivity. If the templates are moved to a word processing system, then the ease of creating a new legal document may be enhanced by several orders of magnitude. As another example,consider a small business owner who moves her bookkeeping from bound journals to a computerized system. Unlike the paper-based system, the electronic system can show, at a glance, the percentage of revenue spent on advertising and revenue relative to the same period last year—all in intuitive business graphics. A marketing and communications company that takes all copy and images that have been used in previous advertising campaigns and digi- tizes them so that they can be stored on CD-ROM instead of in a filing cabinet isn’t in itself practicing Knowledge Management. However, if 9 the company takes the digitized data and indexes them with a software program that allows someone to search for specific content instead of manually paging through hundreds of screens, it is practicing Knowl- edge Management. Given the range of business activities that can be considered examples of Knowledge Management, one of the most confusing aspects of the practice is clarifying exactly what constitutes knowledge, information, and data. Although the academic community has spent decades debating the issue, for our purposes, these definitions and concepts apply: • Data are numbers.They are numerical quantities or other attributes derived from observation, experiment, or calculation. • Information is data in context. Information is a collection of data and associated explanations, interpretations, and other textual material concerning a particular object, event, or process. Metadata is data about information. Metadata includes • descriptive summaries and high-level categorization of data and information.That is, metadata is information about the context in which information is used. • Knowledge is information that is organized, synthesized, or summarized to enhance comprehension, awareness, or under- standing.That is, knowledge is a combination of metadata and an awareness of the context in which the metadata can be applied successfully. • Instrumental understanding is the clear and complete idea of the nature, significance, or explanation of something. It is a personal, internal power to render experience intelligible by relating specific knowledge to broad concepts. As shown in Exhibit 1.2,the concepts defining knowledge are related hierarchically, with data at the bottom of the hierarchy and under- 10 EXHIBIT 1.2 Understanding Knowledge Metadata Human Information Computer Data standing at the top. In general, each level up the hierarchy involves greater contextual richness.For example,in medicine,the hierarchy could appear as: • Data. Patient Temperature: 102° F; Pulse: 109 beats per minute; Age: 75. • Information. “Fever” is a temperature greater than 100° F; “tachycardia” is a pulse greater than 100 beats per minute; “elderly” is someone with an age greater than 75. • Metadata. The combination of fever and tachycardia in the elderly can be life threatening. Knowledge. The patient probably has a serious case of the flu. • • Instrumental understanding. The patient should be admitted to the hospital ASAP and treated for the flu. In this example, data are the individual measurements of tempera- ture,pulse,and patient age,which have no real meaning out of context. 11 However, when related to the range of normal measurements (infor- mation), the patient is seen in the context of someone who is elderly with a temperature and tachycardia.In the greater context of healthcare (metadata), the combination of findings is viewed as life threatening. A clinician who has seen this pattern of patient presentation in the past diagnoses the patient as having the flu (knowledge). In addition, given the patient’s age and condition,the clinician determines (understanding) that the patient should be admitted to the hospital and treated for the flu. Taking an example from a sales agent working for a life insurance company,the knowledge hierarchy associated with a potential customer of a life insurance policy could read as: • Data. Marital status: Single; Annual Income: $32,000; Age: 25. • Information. Death risk is greater for single males than married males; median income is an annual income greater than $19,000; and“young adult” applies to age less than 25. • Metadata. The prospect represents a moderate to low risk. • Knowledge. Given that the prospect has no dependents, insur- ance has no value to him unless the policy can be used as an investment vehicle. • Instrumental understanding. The prospect should be sold a $100,000 cash value life insurance policy. In both examples, more than simply grouping data or information is involved in moving up the hierarchy.Rather,there are rules of thumb or heuristics that provide contextual information. In the case of life insurance, the heuristics for risk assignment might be: • Low risk. Age less than 28, marital status single or married. • Moderate risk. Age 28 to 54, marital status married. • High risk. Age 55 or greater, marital status single or married. 12 As these risk heuristics illustrate,a challenge in creating heuristics is guaranteeing completeness and gracefully handling exceptions. In this case,there is no classification for a 30-year-old single applicant.Similarly, should a 55-year-old marathon runner be considered in the same high- risk category as a 75-year-old overweight smoker? The example also illustrates the contribution of beliefs to knowl- edge,in that knowledge can be thought of as facts,heuristics,and beliefs. For example, there may be no basis for assigning married prospects to the moderate risk category other than hearsay that married men may live longer than single men.Similarly,in business,there exist beliefs and prejudices that may or may not be based in reality but nonetheless affect business decisions. Since these beliefs may be associated with beneficial outcomes,it’s important somehow to incorporate beliefs in the concept of business knowledge. Although the concept of knowledge is roughly equivalent to that of metadata,unlike data,information,or metadata,knowledge incorpo- rates awareness—a trait that implies a human, rather than a computer, host. Although artificial intelligence (AI) systems may one day be capa- ble of awareness and perhaps even understanding, the current state of technology limits computers to the metadata level. Even though the concept of Knowledge Management probably would be better labeled Metadata Management,the latter term is unwieldy and potentially more confusing than simply referring to the concept of Metadata Management as Knowledge Management. Returning to the wording in the definition of Knowledge Manage- ment offered earlier,it is important to note that the process is selective, in that only the important facts and contextual information is saved. Some sort of filter mechanism must be in place to avoid collecting a 13 massive amount of information that is too expensive to store and can’t be easily searched or retrieved efficiently. Similarly,the KM process involves distillation of data to information and of information to knowledge. This step further clarifies and limits the amount of data that must be stored. Before the information can be stored in some type of memory system, however, it has to be organized in a way that facilitates later retrieval. Organization usually involves deciding on a representation language and a vocabulary to identify con- cepts.For example,in the risk assignment for insurance policy prospects, does the designation “single” apply to recently divorced prospects as well? Furthermore, the concept of Low Risk can be represented math- ematically, as inM LR = AGE < 28 AND MS = SINGLE OR MS = MARRIED Or in simple text prose: Low Risk is assigned to prospective customers less than 28 years of age who are married or single. Storage is most often accomplished using several forms of informa- tion technology, typically including PCs and servers running database management software. However, data sitting in a repository is of no value unless it’s put to use. As such, Knowledge Management is a two- way process,in that data are first captured,manipulated,and stored,and then the resulting information is packaged or reformatted to suit the needs of the user. As an example of this packaging,consider the exam- ple of risk assignment for insurance prospects. The original materials and process description may be reformatted as a graphical decision tree, as in Exhibit 1.3. Similarly,the text originallyfiliedated by managers may be simp in both organization and vocabulary for easier access by line workers. For 14 Team-Fly EXHIBIT 1.3 Low Risk < 28 Medium Risk Yes Age Married 28–54 No ?? Risk > 55 Prospect High Risk example,an engineering white paper on calibrating a computer monitor might state: The display’s gamma should be adjusted to match the Pantone 145.... However, a customer support representative who has to walk cus- tomers through the calibration process is more likely to understand— and be able to communicate to the customer—something like this: The display’s color display curve (see photo) should be adjusted so that the color displayed on the monitor is as close to the supplied color patch as possible... This packaging,or formatting,of information in a form most intel- ligible for its intended consumer can be performed semiautomatically with software tools such as synonym generators, or manually through an editorial review process. Finally, for the information to be useful, it has to be communicated to the intended recipient. Having a wealth of process and factual data in a sophisticated but dormant information sys- tem is like having a massive book library and not using it. 15 From the business perspective,Knowledge Management is useful only if information is used in a directed manner, such as to improve employee performance. If the information is useful, it should directly impact employee behavior and be reflected in increased efficiency,effectiveness, or diligence.Ultimately,the improvement in corporate competitiveness from the corporate perspective is the rationale for investing in Knowl- edge Management. Intellectual Capital In traditional management of early twentieth century that dealt with the optimum utilization of labor, parts, and other physical resources, capital was considered limited to the factories, machines, and other human-made inputs into the production process. In the modern cor- poration with a KM initiative, the concept of capital is extended to include ephemeral intellectual capital and its impact on individual and organizational behavior. Although intellectual capital can be lumped EXHIBIT 1.4 Human Structural Capital Capital Customer Capital 16 into one concept,from a KM perspective,it’s more useful to consider the constituent components individually, as shown in Exhibit 1.4. The three major components of intellectual capital are: 1. Human capital. The knowledge, skills, and competencies of the people in the organization. Human capital is owned by the employees and managers that possess it.Without a KM system in place, when employees and managers leave the company, they take their skills, competencies, and knowledge with them. 2. Customer capital. The value of the organization’s relationships with its customers,including customer loyalty,distribution chan- nels,brands,licensing,and franchises.Because customers often form bonds with a salesperson or customer representative, customer capital typically is jointly owned by employee and employer.The proportion of customer capital held by employees and employers depends on the relative contribution of customer loyalty to cus- tomer capital. 3. Structural capital . The process, structures, information systems, and intellectual properties that are independent of the employees and managers who created them. Intellectual properties are sometimes considered as a separate, fourth component of intel- lectual capital. Each of the three major components of intellectual capital can be subdivided into finer levels of granularity, as shown in Exhibit 1.5. For example, for KM purposes, Human Capital is composed of three kinds of knowledge: tacit, implicit, and explicit knowledge. Tacit knowledge is knowledge that is ingrained at a subconscious level and therefore difficult to explain to others. An expert machinist may be extremely skilled at operating a particular machine,for example, 17 but be unable to instruct an apprentice on exactly how to duplicate his expertise.Most knowledge involving pattern recognition skills fall under the category of tacit knowledge.For example,a seasoned radiologist can generally look at a typical radiographic film of a patient’s chest and instantly decide if the film is normal or abnormal.However,eliciting the process that the expert diagnostician used to make her determination is virtually impossible.When forced to teach residents and students how to read radiographic studies,radiologists use a systematic approach,looking at bones first, then soft tissues, and so on, so that the learner has a place to start in the learning process.In fact,however,the system most radiol- ogists teach isn’t the system that they use. Similarly, pathologists, like master chess players, use one system and teach another. Implicit knowledge, like tacit knowledge, typically is controlled by experts. However, unlike tacit knowledge, implicit knowledge can be extracted from the expert—through a process termed knowledge engi- neering.For example,an expert at assigning risk to insurance prospects might use the risk heuristics discussed earlier, assigning risk as a func- tion of age and marital status. Once a new employee is given the same heuristics,either in the form of a set of rules or drawn as a decision tree, he or she can make a risk assignment with the same level of accuracy as the expert, who may have developed the heuristic through years of experience. The third form of knowledge, explicit knowledge, can easily be conveyed from someone proficient at a task to someone else through written or verbal communications. The recipe for a cake, the steps involved in bolting a car door to the main chassis on an assembly line, and the list of ingredients required for a chemical process are all explic- it knowledge. Unlike tacit and implicit knowledge, explicit knowledge often can be found in a book or operating manual. 18 EXHIBIT 1.5 Intellectual Capital Components Human Attitude Competencies Education Knowledge Skills Customer Brand Company name Customers Distribution channels Franchise agreements License agreements Loyalty Structural Copyright Corporate culture Design rights Financial relations Information technology infrastructure Management processes Service marks Trade secrets Trademarks Since management in every organization manipulates human, structural, and customer capital, every organization uses Knowledge Management to some degree,though not necessarily in a sophisticated, formalized way.Not only does the relative percentage of the three types of intellectual capital vary from one company to the next, but the per- cent of human,customer,and structural capital varies from company to company, as well. 19 The following vignette illustrates the practical value of a formalized KM approach in increasing corporate competitiveness. T ale of Two Companies Two companies at opposite ends of the country,Healthcare Productions in San Francisco and Medical Multimedia in Boston, are involved in supporting the pharmaceutical industry.Both companies create promo- tional materials for conferences,educational programs for clinicians,and web sites for disseminating prescribing information about drugs to healthcare providers. Medical Multimedia, in operation for about five years, has 35 employees and has been operating at a modest profit margin for the past three years. About half of the employees are involved in creating and manipulating images,sounds,videos,and other multimedia assets,while the remainder are concerned with programming, marketing, sales, and customer support.With two new contracts in the works, and the com- pany already at capacity due to ongoing projects,Ron,the head of multi- media production, is operating in panic mode. Multimedia content has always been created for particular projects;when the project was delivered, the assets were stored in an ad hoc manner on various company servers, CDs, and hard drives. The content that was burned onto CD-ROMs has been stored in a fireproof safe in Ron’s office. With the deadlines for the two new contracts looming, there is no time for anyone to excavate for the content previously developed— some of which could be repurposed for the new contracts.Yet there is insufficient time to redraw the figures,synthesize the sounds,and render the video images from scratch. Faced with this reality, Ron approaches the president of the company and requests permission to hire a multi- media consultant immediately. 20 The president agrees, and Mary, a multimedia consultant with over 20 years experience in the field, is brought on board the next week. Mary suggests that Ron use a multimedia database program specially designed to keep track of graphics,sounds,and pictures,and their asso- ciated intellectual property status, so that components of Medical Multimedia’s holdings can be quickly and easily repurposed. With the go-ahead from Ron, Mary lays the groundwork for the multimedia database program by interviewing everyone who eventually will directly or indirectly use the system, including: • Artists. Graphic, video, and sound artists who need to refer- ence prior work or continue work on active projects. • Corporate Counsel .To verify intellectual property status of individual work. Some images and sounds held by Medical Multimedia are licensed from third parties for specific purposes or numbers of users, whereas others are created in house. A graphic originally licensed for a print publication may need to be relicensed for use on the web. Management . Ron and those involved in project management • need to frequently assess the progress of graphic artists and verify that production schedules are on track. Programmers .The programming staff needs some way to assess • the technical challenges associated with each media asset des- tined to be incorporated in electronic products. For example, some sounds and images may need to be converted into a form that is compatible with the web. Not interviewed but considered in the design of the system are: • Customers. Media typically needs to be exported periodically to customers for their sign-off before the sounds and graphics are incorporated into the brochures, books, or electronic products. 21 • Potential Clients . Potential clients who are interested in the style and quality of artwork may pay the company a site visit prior to signing a contract for deliverables. • Marketing and Sales. This group uses the media in presenta- tions to customers and potential customers In the interview process,Mary is concerned not only with the over- all process of use but also with exactly how the assets will be cataloged and then retrieved. For example, she establishes a standard file-naming scheme that guarantees unique file names. In addition, she creates a database structure that incorporates the needs of artists, management, programmers, and corporate counsel that includes: • Artist/Licensor . Name of the creator. • Copyright Holder .The copyright holder of the multimedia. Creation Date .The date the media was created or acquired. • • Creation Tool/Version . Name and version of the software used to create the asset. • File Name .The full name of the media file, as it appears on the computer. • Index Terms. Standardized names used to classify the media, in this case using a vocabulary developed by the National Library of Medicine for its multimedia holdings. License Expiration Date . If licensed, the date of expiration. • • License Restrictions . For acquired multimedia, the restrictions imposed by the supplier. Physical Location .Where the actual multimedia resides in the • company’s information system. • Project. Name of the project the media is intended to support. • Source File . For media rendered from models or other sources, the name of the source file. 22 Version. Version of the file. In the course of editing an image • for production, a dozen or more versions may be created, for example. During Mary’s work,she discovers that management has lost touch with its multimedia assets and its intellectual capital.Other than the per- son directly involved in managing or creating specific multimedia, no one knows the specific processes involved in creating products for market. Management is so focused on company growth through capturing new contracts that existing processes are being ignored. For example,one of the company’s core competencies,the ability to render realistic,three-dimensional(3-D) images of patients,is dependent on one artist who is fluent in a custom software package that is so spe- cialized and complex that it takes months to master. Furthermore, unbeknownst to upper management,Ron has been unable to locate any- one to hire full time to assist the artist.The best that Ron can do is to identify a freelance consultant in Seattle and one in Oakland to handle some of the work. If the in-house artist were to leave, the entire pro- duction work of the company would come to a halt. Since Medical Multimedia specializes in custom work, most of the internal processes parallel those of the artist,in that they are highly person- dependent and only the creator knows exactly how he performs his work.Realizing the potential for disaster,Mary approached the president of the company and suggested that she expand her multimedia asset management project to include the company’s intellectual capital.Given her success with the multimedia assets and her experience with similar companies,the president agreed to extend the asset management project. He offers Mary a full-time position with Medical Multimedia,in charge of capturing, cataloging, and managing the company’s multimedia and intellectual assets. 23 With assistance from the president,Mary defines a KM program in which artists, programmers, marketing, and managers are required to document the process they use in their work,in working with others in the company, and in interacting with customers. Within a year of being hired, Mary has a working KM program in place and functioning. When potential customers call Medical Multimedia for an estimate on cost and delivery time,sales and marketing are able to quickly and accu- rately predict the internal cost and time required to create the desired product. Additional multimedia that must be created or licensed, the current backlog of work in process,and the additional human resources needed to complete the project on time are all available to marketing and senior managMrs,thanks to the multimedia database and a library of decision supporA tools that Mary installed. UnderstandiEg exactly how the 3-D graphic artist performs her work becomeT of particular importance when she suddenly leaves to start her own company in the Midwest. Thanks to the process descriptions of her work, Ron is able to hire a replacement with the right mix of Within two years, Medical Multimedia is a profitable, 75-person oper- ation with a record of accomplishment of delivering quality product on time and to specification. The San Francisco–based Healthcare Productions, which also employs 35 employees,takes a different tack regarding the management of its intellectual capital. Healthcare Productions hires a multimedia consultant to create a multimedia database to track multimedia assets. However, the parallels between the two companies stop here. The president of Healthcare Productions is resistant to extending the role of the consultant to include intellectual capital.Instead,after six months of work,the multimedia consultant moves on to another com- 24 Team-Fly pany. However, given the competition for artists and programmers in the volatile economy,employees are constantly leaving the company for greener pastures. Even with only three or four employees leaving the company every year, the lag time between finding, hiring, and training a new employee can be up to nine months. As a result, Healthcare Productions can’t grow by accepting new clients but is in a holding pat- tern, simply trying to keep up with the existing demand. K ey Concepts The story, to be continued in later chapters, illustrates several key con- cepts regarding knowledge management. • Leadership is essential. Someone in senior management has to own the KM effort.This manager is often termed the chief knowledge officer (CKO) if the task is all-encompassing, or the chief information officer (CIO) or other senior manager may take it on as an additional responsibility. Regardless of who takes the role, it involves achieving buy-in at all levels in the organization. In the story, Mary, who began as a media organization consultant, became the CIO by default, thanks to buy-in from senior management. Knowledge Management works. The potential benefits of • Knowledge Management are numerous and can potentially benefit every type of business, especially those involved in the information technology and service industries.What can a senior manager expect from implementing KM in a corpora- tion? As illustrated in the story of the two companies, under optimum conditions, KM promises reduced costs, improved service, increased efficiencies, and retention of intellectual assets. • Knowledge Management requires training. Employee and manager education is fundamental to the proper operation of every phase of the KM process. As the story illustrates, employees 25 and managers have to be trained to focus on the overall process even while they are attending to specific problems. • Expectations must be managed. Implementing a KM program involves fundamental changes in how employees and managers interact, communicate, command, and get things done. Before reporting lines, responsibilities, and management directives shift to meet the KM demands of the corporation, employees and managers must be prepared for the change. However, since most people fear change, especially if it means disrupting a way of life that they’ve grown accustomed to, productivity can suffer unless employee expectations are managed proactively. As Mary’s role in the story illustrates, an effective approach is to demonstrate the process on a clearly defined, obvious goal that is an easy win—such as cataloging digital image assets. Only after this success was the consultant prepared to convince employees and management of the need to follow general KM practices. Practical Knowledge Management is technology dependent . Each • of the steps in the KM process, as well as tracking knowledge assets, can be enhanced by information technologies. For example, the process of information creation is supported by the ubiquitous word processor running on a PC, and painless acquisition is made possible by the web and associated net- working hardware. Similarly, storing and manipulating huge stores of data are made possible by database servers and soft- ware, and getting data in the hands of users benefits from handheld devices and wireless networks that provide anytime, anyplace access to information. • Knowledge Management is a process, not a product. Knowledge Management is a dynamic, constantly evolving process, and not a shrink-wrapped product. Knowledge is an organizational process rather than a static collection of data that can be stored in a database.Typical KM practices in a modern corporation 26 include acquiring knowledge from customers, creating new revenues from existing knowledge, capturing an employee’s knowledge for reuse later, and reviewing the predictors of a successful KM initiative. TIPS &T ECHNIQUES Assessing theValue of Knowledge Management Before embarking on a Knowledge Management initiative, senior management should have a good idea of its potential value to their organization. In other words, what’s wrong with the current model of conducting business? The key questions to ask are: How would a KM initiative change the day-to-day operation • and management of the organization? For comparative pur- poses, the operations in companies that make use of KM techniques are described in Chapter 2. • How would employees react to the overhead of a KM system? Chapter 3 provides a window into the lives of modern knowledge workers and how KM initiatives impact their pro- ductivity and relationship to the organization. How much could establishing a KM program improve the • efficiency and effectiveness of the current business process? Chapter 4 discusses Knowledge Management as it relates to business processes. • What technologies are available for Knowledge Management, and what are the benefits and limitations? The technological aspect of Knowledge Management is discussed in Chapter 5. • What are the KM solutions offered by vendors, from con- sulting to hardware and software tools? Chapter 6 explores the major commercial options available. (continues) 27 TIPS &T ECHNIQUES (CONTINUED) • What is the likely return on investment (ROI) of implement- ing a viable KM program? The means of calculating ROI and the economics of Knowledge Management, from consulting fees to investment in new management structures to employee training, are discussed in Chapter 7. • What is a reasonable approach to implementing Knowledge Management in the organization? Chapter 8 describes a practical implementation plan, including details on the likely challenges and roadblocks that readers may encounter along the way. Readers who are convinced that Knowledge Management principles have the potential increase their company’s competitiveness in the marketplace are encouraged to explore the resources listed in the Further Reading section. R eality Check Although Knowledge Management has a lot to offer, like any other business optimization process, it is by no means a panacea. The major challenges in the KM field are outlined here and discussed in detail in Chapter 8. Knowledge Management Principles Apply in Varying Degrees Every successful business operation, from the corner deli to the top Fortune 500 companies,uses Knowledge Management to some degree, even if only in an unsophisticated, ad hoc way. However, the work that some companies engage in is so dependent on individual talent,such as musical or graphical artistry, that the only practical way to capture the relevant knowledge is through a lengthy personal apprenticeship. 28 Other work can be defined to the point that virtually anyone with a modicum of training can fill a vacancy anywhere in the company.For example,since McDonald’s hires workers with a wide range of abilities and experiences, its training program leaves virtually no room for vari- ation in process.Even seemingly insignificant tasks,such as the method in which are fries salted (from the back to the front of the deep fryer rack), are fully defined, leaving little room for misinterpretation of the intended process. Some work, such as high-end special sound or graphics effects for a movie, is unique to the point that it can be considered magic—it’s a special, mysterious, or inexplicable quality, talent, or skill. Tasks involving tacit and, to a less
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