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Knowledge as a key resource for companies - requirements for successful knowledge management

Bachelorarbeit 2010 70 Seiten

BWL - Unternehmensführung, Management, Organisation


Table of Contents

List of abbreviations

List of figures

List of tables

1. Introduction

2. Characteristics of knowledge
2.1. Knowledge as economic asset
2.1.1. New sense of knowledge
2.1.2. Post-industrial society
2.2. Defining knowledge
2.2.1. Distinguishing data, information and knowledge
2.2.2. Epistemological views on knowledge Objectivist perspective Practice-based perspective Evaluation of both perspectives

3. Value of knowledge
3.1. Experience and intuition
3.2. Sustainability
3.3. Intellectual capital
3.3.1. Offensive and defensive value
3.3.2. Relationship and organisational capital
3.4. Need for KM

4. Knowledge life-cycle
4.1. Knowledge evolution schemes
4.2. Knowledge creation
4.2.1. Conversion of data into knowledge
4.2.2. Nonaka's knowledge spiral
4.2.3. Acquisition of external knowledge
4.3. Knowledge storage
4.3.1. Organisational memory
4.3.2. Knowledge maps
4.4. Knowledge transfer
4.4.1. Distinguishing knowledge transfer and sharing
4.4.2. Influential factors
4.4.3. Dimensions of knowledge transfer
4.5. Applying knowledge
4.6. Knowledge loss
4.6.1. Importance of organisational unlearning
4.6.2. Knowledge loss typology
4.7. Value creation and extraction

5. KM implications
5.1. KM strategies
5.1.1. KM frameworks
5.1.2. Codification vs. personalisation strategy
5.1.3. Four KM approaches
5.2. Measuring success of KM initiatives
5.3. Business strategy
5.3.1. Relation between KM and business strategy
5.3.2. Gap analysis
5.3.3. Narratives
5.4. Socio-cultural aspects
5.4.1. Participation of employees
5.4.2. Knowledge-sharing culture
5.4.3. Power and conflicts
5.5. Organisational integration of KM
5.5.1. Dedicated resources
5.5.2. Redundancy and rotation
5.5.3. Communities of practice
5.6. Human resource management
5.7. Technological infrastructure

6. Prospect
6.1. Inter-organisational knowledge sharing
6.2. Sustainable re-evaluation of business resources



List of abbreviations

illustration not visible in this excerpt

List of figures

1 The changing character of the US economy in the 20th century

2. The intellectual capital of the firm

3 Knowledge-based view of intellectual capital

4 The KM triad

5 SECI model of knowledge creation

6 The communications model

7 Single-loop learning and double-loop learning

8 Value creation - value extraction matrix

9 Codification strategy

10 Personalisation strategy

11 Strategic gap and knowledge gap

12 How communities of practice underpin knowledge processes

13 Information richness of various communication mediums

A.1 Spiral of organisational knowledge creation

List of tables

1 Characteristics of tacit and explicit knowledge

2 Objectivist knowledge typology

3 Objectivist vs. practice-based characteristics of knowledge

4 Outcomes and objectives of KM processes

5 Knowledge evolution schemes in KM literature

6 Knowledge storage devices

7 Typology of organisational forgetting

8 Four KM approaches

A.1 IC value matrix

A.2 Human capital, relationship capital and organisational capital

A.3 Codification and personalisation knowledge strategies

A.4 Advantages/disadvantages of sharing/hoarding knowledge

A.5 Differences between communities of practice and formal work groups

1. Introduction

Knowledge, the driving force of the development of mankind, has been subject of scientific and philosophical studies since Ancient Age. Since the last quarter of the 20th century, also in economic literature an increasing interest in knowledge has become obvious.

This can be traced back to some major changes in the global economic development: since the mid-1970s tertiary service sectors have become dominant in many economies and have replaced industrial, manufactured goods as the main source of wealth and employment. Societies experiencing such increase in the importance of knowledge can be described as "post-industrial societies".[1]

Globalisation has accelerated enormously in the 20th century and has changed the business world fundamentally. These changes affected the way companies engage in collaboration and competition as operating globally became more and more important. Globalisation has offered comprehensive opportunities for the market players, but also revealed fundamental questions and changed the self-understanding of firms. In order to prevail global competition, companies had to differentiate themselves from their competitors and approach their business in new ways.

Knowledge was discovered to play a crucial role in mastering these challenges and is now seen as a unique source of competitive advantage.[2] As a result, knowledge management (KM) arose as a multi-disciplinary scientific field which focuses on the optimisation of knowledge processes in companies in order to maximize the benefit and value out of organisational knowledge.

Subject of this thesis is to illustrate how knowledge can contribute to sustainable value creation in companies and to explain the benefits and challenges of successful KM.

Given the conceptual comprehensiveness of KM in general and the range of the available KM literature, claiming to cover all dimensions of knowledge, knowledge processes and their implications within an organisational context in an understandable form on a reasonable number of pages would be unrealistic. Thus, the characteristics of organisational KM will be illuminated from an outside-in perspective.

Firstly, the previous and present economic and technological developments that led to knowledge being identified as one of the most important resources companies nowadays possess are analysed.

Chapter 2 then provides an overview about the multiple characteristics of knowledge in companies followed by chapter 3 which explains how knowledge can create value.

Afterwards, in chapter 4 the organisational knowledge lifecycle is introduced with organisational knowledge processes being explained in detail.

Based on these insights, chapter 5 illuminates organisational, technological as well as cultural requirements for enabling organisational knowledge to be utilized successfully. In this chapter, problems and limits that KM initiatives have to face are examined as well.

Finally, the last chapter of this thesis presents an outlook and specifically addresses aspects of KM that are considered to play a higher role in future. The underlying assumption in this chapter is that the ongoing globalisation increases the need of companies to enter networks, operate decentred and develop according decision-making and information infrastructure.

2. Characteristics of knowledge

2.1. Knowledge as economic asset

2.1.1. New sense of knowledge

In organisations, at least implicitly, people have always sought, valued and applied knowledge. Experience and knowledge are more often relevant for e.g. recruiting staff than are their intelligence or education. In order to come to decisions in difficult situations, managers and staff have always relied in a higher degree on the expertise of certain respected individuals within the company than on documents and databases. Knowledge has always been within companies and has been essential to keep companies moving forward.[3]

New, however, is "the growing conviction that knowing about knowledge is critical to business success - and possibly to business survival."[4] This also refers to understanding the need of managing and investing in knowledge like it has previously been done only with other, more tangible assets. The need to make as much value as possible from organisational knowledge is greater now than in the past.

Reason for this is the global economic development since the second half of the 20th century. These are characterized by "a rapidly globalizing economy unified by improved communication and transportation [that] gives consumers an [...] endless cavalcade of new and better offerings from global companies."[5] These developments led companies having to cope with increased price pressure on all steps of the value chain, compressed product and development cycles and higher customer demands regarding quality, value and innovation.

The rapidly changing market conditions went along with the fading distinction between products and services: in order to meet customer expectations and to differentiate themselves from their competitors, companies today need to be able to offer unique, smart products that present additional value to their customers. These convergence processes require innovation capability, personal creativity, customer understanding and technical know-how from all companies that want to be able to compete and make the right decisions in a growing complex environment.

Searching for efficiency, companies have concentrated on their core competencies and leveraged global supply chains. With the help of advanced information and communication technology (ICT) global firms have outsourced labour and support functions to countries with low labour-costs whereas knowledge-based activities of developing and improving products and processes have become the most important functions of the firm as they are recognized as the ones with the greatest potential for providing competitive advantages.[6]

As a result, knowledge is now seen as a strategic business asset that helps companies to master the challenges of a global competition and "brainpower assets" are recognized "as having a degree of importance comparable to the traditional land, labour and tangible assets."[7]

2.1.2. Post-industrial society

In the second half of the 20th century many writers investigated the growing importance of knowledge and the changes in economy and society from a scientific perspective and developed the concept of the "knowledge society". This concept roots on the analysis that economies and societies have become overall more information and knowledge intensive.

The main source of inspiration for supporters of this concept is "The Coming of Post-Industrial Society", a thesis published in 1973 by the American sociologist Daniel Bell. According to his view, industrial societies with manufacturing sectors as the biggest source of employment are about to undergo fundamental changes due to the growing importance of knowledge and information for the society. Industrial societies will evolve into post-industrial societies which are characterized by a dominant service sector and with knowledge based goods and services having replaced industrial, manufactured goods as the main wealth generators.

Despite being the main source of inspiration for many contemporary writers in the area of KM, Bell's thesis has also been subject of sustained critique by many writers. Mansell & Steinmüller as well as other writers cannot confirm Bell's evaluation of omnipresent change processes in society and economy as they realized "a growing polarisation of the labour market between highly skilled, highly paid jobs and low skilled, lower paid jobs."[8] Therefore, for some groups "the idea of a universal increase in the knowledge intensity of work in general is simplistic and [...] misleading."[9]

However, they do not question that there are sectors in the economy in which the knowledge intensiveness has increased. Moreover, there has also been comprehensive statistical evidence for proving Bell's thesis, confirming the long term, historical shift from industry to services, and from goods handling to information handling work (see Figure 1).

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Figure 1: The changing character of the US economy in the 20th century

Source: Manuel Castells (1995): The rise of the network society (p. 296, Table 4.8)

2.2. Defining knowledge

2.2.1. Distinguishing data, information and knowledge

After having outlined the fundamental changes in global economy that made knowledge nowadays more vital to organisations than ever before, subject of this chapter is to develop a clear understanding of what knowledge actually is and to provide an overview of the diversity of knowledge that exists in companies.

Within every company knowledge is circulating. The dominance of theoretic and abstract knowledge between companies from e.g. the manufacturing sector and firms that operate in the service or consulting industry may differ, however the basic elements which constitute the organisational knowledge are similar.

Any organisation bases its decision on data and information. Knowledge does not equal data or information, however knowledge derives from information as information derives from data. In a business context, "data can be described as structured records of transactions"[10] which are the raw material for the creation of information. However, data themselves do not provide any judgement or interpretation and have no inherent meaning.

In order to draw usage from data, they have to be shaped with value and meaning being added to them. This can happen by e.g. presenting them in a certain context, categorizing and correcting them from errors. Being received as a message, they provide a certain meaning to the recipient of the message and initiate decision processes or actions which in return lead to certain results. Information can therefore be described as data that makes a difference.

However, the level of information one draws from certain data may differ between sender and receiver. Finally, receivers decide what they consider to be information and what not. Moreover, a high level of data that is made available to the employees of a company does not automatically lead to the right decisions as it makes it harder to evaluate what data is relevant and to derive the right conclusions.[11] Aeschylus, an ancient Greek playwright, already pointed out twenty-five centuries ago: "Who knows useful things, not many things, is wise."[12]

Deriving conclusions and turning them into action however are essential characteristics of knowledge in organisations. Developing a clear and distinctive definition of knowledge is nonetheless very difficult as - despite comprehensive scientific investigation of this topic since Ancient Age - knowledge itself is much wider and abstract than data and information:

Davenport and Prusak define knowledge as "a fluid mix of framed experience, values, contextual information, and expert insight that provides a framework for evaluating and incorporating new experiences and information."[13] The difficulty in providing a concrete and reliable definition lies in the nature of knowledge being a mixture of various elements which can appear fluid but also formerly structured. As it is originated and applied in the minds of people, knowledge is part of human complexity and unpredictability.[14] The creation of knowledge can therefore be seen as a result of human conversion processes.

2.2.2. Epistemological views on knowledge Objectivist perspective

In literature, there are two leading perspectives on knowledge: the objectivist perspective and the practice-based perspective.

The primary characteristic of the objectivist perspective is that it regards knowledge as an entity that originally certain people possess but which can be made explicit and codified in e.g. documents or computer systems. Objectivists regard knowledge from a "knowledge is truth"[15] perspective focussing on scientific facts and laws which are free from individual subjectivity.[16]

These assumptions lead to another key characteristic of the objectivist view: the superiority of explicit knowledge over tacit knowledge. Tacit knowledge includes informal, subtle components and represents skills and capabilities which are shaped unconsciously by individual beliefs and perspectives which make tacit knowledge difficult to be articulated, codified and shared in the form of data (see table 1). The philosopher Michael Polanyi describes this essential characteristic of tacit knowledge with the statement "we can know more than we can tell."[17]

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Table 1: Characteristics of tacit and explicit knowledge

source: Hislop: op. cit. (p. 23, table 2.2)

Due to its informal and highly subjective character, objectivists consider tacit knowledge to be of marginal importance for the overall knowledge held in organisations. Finally, objectivists regard knowledge as a result of a process of intellectual reflection. This entitles knowledge to be held in people's heads but still being ultimately codifiable.[18]

The objectivists' typology of knowledge is based on two assumptions: firstly, explicit and tacit knowledge are seen as two separate forms of knowledge. Moreover, the objectivist perspective considers knowledge to reside in individuals as well as groups. Such social knowledge can be codified representing e.g. explicit formalized routines or operating procedures. But it can also be collective representing tacit group knowledge which covers values and informal routines. In summary, the objectivist perspective on knowledge distinguishes between four independent types of knowledge as can be seen in the following table.[19]

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Table 2: Objectivist knowledge typology

source: Hislop: op. cit. (p. 24, table 2.3) Practice-based perspective

A very different approach towards this definition of knowledge is the practice-based perspective. This view conceptualizes knowledge not as a discrete entity but as being embedded and inseparable from human activity: "Rather than regarding knowledge as something that people have, it is suggested that knowing is better regarded as something they do."[20]

Another key difference towards the objectivist perspective is that the practice-based perspective rejects the either/or logic regarding the categorisation of knowledge emphasizing the complexity of organisational knowledge and the relations between the different knowledge dimensions. Blackler describes knowledge as being "multi-faceted and complex, being both situated and abstract, implicit and explicit, distributed and individual, [...] verbal and encoded."[21]

According to the practice-based view, there is no fully explicit knowledge: in order to make sense of codified knowledge, e.g. a text, tacit components are required such as the understanding of the text's language and grammar.[22]

From this example, another important key assumption of the practice-based view can be derived: as all knowledge is entitled to have tacit dimensions, it is impossible to totally disembody knowledge from people into a fully explicit form. Further, and in contrast to the objectivist perspective, due to tacit dimensions knowledge cannot be extracted and codified completely but can only be spread via communicating, interacting and cooperating. The practice-based view therefore considers the production and interpretation of knowledge to be highly subjective and to be socially and culturally embedded.[23] Evaluation of both perspectives

Both perspectives have different underlying assumptions and therefore provide distinctively different views on knowledge and different implications for KM. While the objectivist perspective sees explicit and tacit knowledge as independent and separate knowledge types, it focuses on the codification and collection of knowledge. In contrast, the practice-based perspective considers knowledge as result of human activity and defines interaction and communication as the basis for knowledge processes within companies (see table 3).

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Table 3: Objectivist vs. practice-based characteristics of knowledge

based on: Hislop: op. cit. (p. 19, table 2.1 and p. 34, table 3.2)

The advantage of the objectivist view lies in its ability to reduce complexity of business reality and to classify organisational knowledge into distinctive types of assets. Moreover, the knowledge-based theory of the firm - a framework which adopted the objectivist perspective and which originates from a resource-based view - considers knowledge to be a valuable, rare, inimitable, and non-substitutable resource and therefore an important source of sustainable competitive advantage.[24] However, it neglects tacit knowledge and focuses on technological solutions for KM initiatives in order to make as much explicit knowledge available as possible.

Given the complexity of the today's business world and the subtle relations between knowledge and elements like data, information and action outlined previously, the practice-based perspective appears to be a more suitable approach when focussing on knowledge and KM in an operating organisational environment. It illuminates knowledge more integrative than the objectivist perspective and does not emphasize on the quantity of codified knowledge but on the multi-dimensionality of knowledge in general.

As will be described later, different models of organisational knowledge processes include characteristics of both perspectives. Even though the objectivist perspective has been discussed and criticised due to its underlying assumptions[25], both perspectives admit that organisational knowledge consists of explicit and tacit components. Therefore it is misleading to judge the practice-based perspective to represent the better conceptualisation of knowledge.

As the objectivist perspectives focuses on explicit knowledge while the practice-based perspective emphasizes the tacit character of knowledge, the importance of both perspectives lies in their ability to provide approaches for different kinds of problems in different environments.

3. Value of knowledge

3.1. Experience and intuition

It has been pointed out that knowledge is not only derived from hard objective factors like data and information but depends in a high degree from the complex personal characteristics, the environment and the interaction of people. This is not only a relevant characteristic of knowledge according to the practice-based perspective but it is also an essential source of value for companies.

Developing over time through human interaction, learning and practice, experience is a valuable dimension of knowledge as it allows to recognize familiar patterns and can make connections between what is happening now and what happened then.[26] Gaining experience can contribute to efficient decision making as in complex situations, experienced people intuitively anticipate situations correctly.

Experienced people develop rules of thumb which can be explained as "flexible guides to action which developed through trial and error and over long experience."[27] As patterns of internalized experience, they lead to intuition which enables experienced people to derive the correct decisions and actions even in complex situations automatically, without conscious thought, and therefore at great speed. Finally, experience is often more reliable and therefore more valuable than basing decisions on scientific theories and comprehensive analyses.[28]

3.2. Sustainability

Considering the changing market conditions outlined in the first chapters, with advantages of new products and efficiencies being more and more difficult to sustain and half-life of innovation and life cycles of products getting increasingly shorter, knowledge represents the only sustainable competitive advantage.[29]

Knowledge is the basis for improvements in quality and efficiency as knowledge assets increase through usage with ideas breeding new ideas generating increasing returns and continuous advantages. Given the opportunity to be creative and to share knowledge with each other, people in companies can develop limitless ideas and force innovations which in return can lead to economic growth.[30]

Ideas and innovation are the basis for developing smart products and solutions. Therefore, one aspect of the competitive advantage of knowledge for companies is the realisation of additional value creation towards the customer which in return creates value for the company. Moreover, knowledge enables the company to differentiate itself from competitors in two ways - in terms of costs and innovation.[31]

According to the objectivist perspective and the knowledge-based theory of the firm introduced in chapter 2, the sustainability of organisational knowledge is derived from it being the result of cognitive, intellectual processes and representing a unique resource within the company. Given appropriately careful measures of utilisation and protection, organisational knowledge allows to develop inimitable and non-substitutable competences. Being difficult to be duplicated, according to Schwartz "strategies based on these competences are likely to lead to sustainable competitive advantage."


[1] Cf. Donald Hislop (2009): Knowledge Management in organisations, p. 3-5

[2] Cf. Patrick H. Sullivan (2000): Value-driven intellectual capital, p. 31

[3] Cf. Thomas H. Davenport, Laurence Prusak (2000): Working knowledge: how organisations manage what they know, p. 12

[4] Davenport, Prusak: op. cit., p. XXVIII

[5] ibid., p. 13

[6] Cf. ibid., pp. 12-14

[7] Sullivan: op. cit., p. 4

[8] Robin Mansell, W. Edward Steinmüller (2000): Mobilizing the information society, p. 403

[9] Cf. Hislop: op. cit., pp. 4-7

[10] Davenport, Prusak: op. cit., p. 2

[11] Cf. Davenport, Prusak: op. cit., pp. 2-4

[12] Cf. ibid., p. 7

[13] ibid., p. 5

[14] Cf. ibid.

[15] Hislop: op. cit., p. 19

[16] Cf. ibid., pp. 19-21

[17] Ikujiro Nonaka (1991): The knowledge-creating company, p. 14

[18] Cf. Hislop: op. cit., pp. 19-21

[19] Cf. Hislop: op. cit., pp. 22-24

[20] Frank Blackler (1995): Knowledge, knowledge work and organisations, p. 1023

[21] ibid., p. 1032

[22] Cf. Hislop: op. cit., pp. 34-36

[23] Cf. Hislop: op. cit., pp. 37-39

[24] David G. Schwartz (2006): Encyclopedia of knowledge management, p. 65

[25] Cf. Hislop: op. cit., p. 33

[26] Cf. Davenport, Prusak: op. cit., pp. 7-8

[27] Davenport, Prusak: op. cit., p. 10

[28] Cf. ibid., pp. 10-11

[29] Cf. ibid., p. 16

[30] Cf. ibid., p. 17

[31] Cf. Schwartz: op. cit., p. 65


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Institution / Hochschule
FOM Hochschule für Oekonomie & Management gemeinnützige GmbH, Berlin früher Fachhochschule
knowledge management requirements intellectual capital assets codification personalisation data information objectivist practice-based relationship capital organisational capital human capital lifecycle knowledge processes nonaka seci model knowledge creation knowledge maps knowledge sharing communities of practice




Titel: Knowledge as a key resource for companies - requirements for successful knowledge management