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MANAGEMENT TOOLS & PRACTICEREADINGS PART 3

MANAGEMENT TOOLS & PRACTICE – READINGS, PART 3.

Readings from Internet sources referred below.Collected, selected and elaborated for SZIF KÖF, by [email protected], Spring Semester, 2001.

Contents

THE ESSENCE OF MARKETING MANAGEMENT.........................................2The Marketing Process.......................................................................................................2The Marketing Manager's Tasks.........................................................................................3The Marketing Mix............................................................................................................3The Environment...............................................................................................................3

PRODUCT POLICY.......................................................................................5

BENCHMARKING & BEST PRACTICES........................................................6A Book Review.................................................................................................................6

FRANCHISING: THE BASICS.......................................................................7An Overview......................................................................................................................7What Is Franchising...........................................................................................................8The History of Franchising.................................................................................................8

KNOWLEDGE MANAGEMENT...................................................................11Developing a Context.......................................................................................................11Data or Information?........................................................................................................11Associations.....................................................................................................................12A Continuum...................................................................................................................13Extending the Concept.....................................................................................................13Knowledge Management: Bah Humbug!..........................................................................14The Value of Knowledge Management.............................................................................14

SZIF KÖF Menedzsment tanszék, 2001. május 1


THE ESSENCE OF MARKETING MANAGEMENT

In this article we will attempt to define and explain the following:1

The marketing function The nature of the marketing process The tasks of the marketing manager The marketing mix: Product policy, Pricing policy, Distribution policy and Market

Communications (promotion) policy. Environmental influences

Marketing is primarily based on identifying or creating a need among consumers, and then developing a product or service to satisfy that need. The marketing function is concerned with the management of that marketing. It has to be managed in a way that allows the enterprise to achieve its objectives, namely to make money. The marketing function therefore concerns all the management activities performed in transferring the products and services of the enterprise to the consumer.

Spend a few minutes jotting down what activities you think need to occur during the marketing process which enables the transfer of products or services from the enterprise to the consumer. You should have come up with some of the following on your list:

studying the market to determine what the consumer needs; developing a product or service to satisfy that need; deciding on an affordable price for the product; informing consumers about the product (advertising); making the product easily available, i.e. distributing it to places where consumers can obtain it. keeping a close watch on the environmental factors influencing the performance of the product.

THE MARKETING PROCESS

During the marketing process, the enterprise's product is transferred from the enterprise to the consumer. The marketing process therefore involves a transaction between two separate parties - the marketer or enterprise and the consumer. The consumer has a need and the resources (money) to fulfill that need, while the marketer has the product to fulfill the consumers' need. In exchange for providing the product, the marketer/enterprise receives money from the consumer and so achieves the enterprise's objective of making a profit.

Let us try to understand this process using Thabiso Mofokeng's enterprise called Learning Nation Building Contractors. People need houses in which to live and Thabiso's enterprise builds houses. A win-win situation emerges. Thabiso builds cost-effective (the building of quality houses with as little money as possible) houses and makes a profit. People pay for these houses and have a basic need fulfilled. Thabiso's business can now continue building other houses and people can now concentrate on fulfilling other needs. It is important to understand that both the marketer and the consumer must gain from this relationship. Otherwise, the enterprise will close down or the consumer's needs will not be adequately fulfilled.

1 This site was designed, built & is maintained by A ll T hings D igital - Internet Architects


mailto:[email protected]


THE MARKETING MANAGER'S TASKS

During this marketing process, the activities that make up the marketing function occur (see answers to the first Activity ). The task of the marketing manager is to make decisions about these activities. He/she has to:

Draft a marketing programme for the enterprise. This programme sets the marketing goals and objectives for the enterprise. Usually, the objective of an enterprise is to make a profit. The marketing programme states clearly what the enterprise wishes to achieve with a particular product (its goals). Thabiso's goal is to make money by building cost-effective homes for the community.

Devise a marketing strategy. This strategy is the enterprise's plan of action; it states how the enterprise will achieve its goals. For this, the marketing manager has to:

Choose a particular target market. The target market is a homogeneous group of people ie a group of people with similar needs (also referred to as a market or a market segment). The product is aimed at them, and they will buy it if it meets their requirements. Thabiso's target market is people who have no homes. This includes people who are currently living in backrooms, hostels or shacks.

Develop the optimum marketing mix. The marketing mix is a combination of the four marketing policy instruments: the product policy, pricing policy, distribution policy, and market communications policy.

Monitor the environment. The environment within which the enterprise operates must be taken into consideration by the market manager.

Exercise: List the target market of some of the well-known enterprises.

THE MARKETING MIX

For an enterprise to make money, it has to market need-satisfying products at prices that consumers can afford. The products have to be available at places where consumers prefer to buy them. Consumers also have to be informed about the availability of those products. The marketing manager therefore has to make four types of policy decisions:

Product policy, which deals with the choice of the product, its design, packaging and trademark. Pricing policy, which deals with the setting of a price for theproduct and the adjustment of the

price to suit the changing market. Distribution policy, which deals with the paths or channels through which a product travels in

order to get from the enterprise to the consumer. Market communications policy, which deals with informing the consumers about the product.

This could take the form of advertising, personal selling, sales promotions or publicity.Together, these four marketing instruments make up the marketing mix. The marketing manager uses them together to enable the enterprise to make a profit. We will cover each of the marketing instruments in more detail in articles that follow.

THE ENVIRONMENT

The marketing manager has to keep a careful watch on the environment within which the enterprise operates. There are several variables (factors) such as the economic climate of the country, the competition, the behaviour of consumers, which could affect the performance of a product on the market. These variables fall into three categories:



Manageable variables. These are variables that the marketing manager can control, and change to suit his/her purposes because they are directly under his/her authority. They are within the marketing department of the enterprise. Examples are management of the marketing function, the marketing objectives, etc.

Semi-manageable variables. These variables do not fall under the direct control of the marketing manager, but they can be influenced by him/her, because they are within other departments of the same enterprise. Examples are the management functions of purchasing, production, financing etc.

Non-manageable variables. These variables are outside the enterprise and therefore the marketing manager has no control over them at all. Examples are the market, competition, legislation (local and foreign laws), consumers' choices and preferences, etc. For example, we all know that April is a very important month for our country. We also know that there is a massive housing shortage. If violence increases, this would limit Thabiso's ability to build houses and people's need for houses will be temporarily shelved. However, if violence decreases, people will want houses to be built and Thabiso will be willing to build more houses.

A way of dealing with non-manageable variables such as competition and consumers' choices and preferences is for the market manager to make his/her product the most attractive there is on the market. This is why it is essential for the marketing manager to use all the marketing instruments in a way that would attract consumers to the product, and make a profit for the enterprise.

PRODUCT POLICY

If we put the question, is the product mix right for the market and for the company, the high incidence of new product failures suggest we neglect the consumer at our peril! We should have the necessary techniques and planning tools to explore how to fulfil the consumer requirements by our product. To gain it, we should analyze the consumer requirements and, the business performance of our company.

A Product Audit may be necessary to determine our strengths/weaknesses with the respect to market requirements and competitive conditions. A Product Audit should analyze and evaluate the following factors of our product:

Market share and, % of company sales Consumer likes/dislikes Sales trend and seasonality Contribution and, fits into firms product mix Degree of facility useage Return on investment

Based on the results of our Product Audit we may improve the product position by further efforts:

Extend our market surveys to gain a consumer oriented research study and, Maximize return on investment by a well-oriented product development, price policy and selling

practice.

If we should decide about new products, we should answer the following questions:

Has profitable growth potential of existing products been fully explored? Is company dependant for profits on one or two products only? Do we have the resources to mount a successful new product programme? Will other products have to be dropped to make way for new ones? What is the companies’ basic attitude to new products?

In order to build positive and market-efficient management considerations, the marketing manager first of all must address himself to the market place. To decide rationally, he/she should be aware of attitudes within the company to growth versus quality. After this step, the marketing manager should



appreciate the contribution the various products make to the health of the company . His/her options should not be limited by what has happened before, he/she should regard to the future needs and opportunities, as well. The following question is, if the products are marketed as effectively as possible? To answer this question, we detailed should analyze strengths & weaknesses of own and competitor products. Check if products are ore are not oversupported.

In the course of new product developments, managers should be prepared to experiment the market chances and, parallelly, the production circumstances. The main tools of it are the group discussion and, the market screening. We should test the following characteristics of our product:

Market size, market growth and, the level of competition Degree of exclusivity and, manufacturing ease Margin level Fitting of distribution channels into market chances

Finally, several relevant placement tests, a final check and screening of market, technical, economic and financial factors regarding to the given product serve the market success of a well built-up product policy.

BENCHMARKING & BEST PRACTICES

McNair, C.J. – Kathleen Leibfried, K. (1992): Benchmarking: A Tool for Continuous Improvement . Oliver Wight Publications

A BOOK REVIEW

Benchmarking has become a key tool for improvement and productivity. Leading businesses want to retain their status as „best-in class” and other businesses want to achieve that status.

Benchmarking brings up a variety of emotions in organizations. Some fear it as mysterious and/or too complicated to be useful. Some excuse themselves from the need citing their already excellent practices and outcomes or the lack of relevance of their industry to another. But the authors' easy-to-read style and thorough explanations and examples give real meaning and understanding to the benchmarking opportunity.

As McNair and Leibfriend point out, benchmarking is a never-ending process used to give real meaning to the intent of continuous improvement, making changes, and protecting stakeholders' interests. Once started, the competitive piece of human nature often kicks in, challenging managers to develop ways to be the best -- either against themselves and past performance, or against other companies. This book provides a great deal of information in benchmarking and is useful to all readers interested in the subject, no matter at what stage of a benchmarking effort -- beginner to leader of complex projects.

The authors explain the elements of benchmarking simply and clearly, emphasizing that a company must thoroughly analyze its practices within a particular functional area to determine its current practices. Following this internal assessment, the organization finds other companies to assess who are achieving notable results in that particular function. The difference between how they're operating now and the best results achievable in the particular function provides "the gap" that must be overcome. The information provides material for goal-setting, with better ideas about how to achieve them. Once established, goalsetting and achieving can become contagious, spinning into an improvement mode that explains how organizations can make quantum leaps in operation -- far surpassing the incremental improvements they might make on their own.



Detailed case studies are offered on such companies as Avon, Exxon, and Janssen Phamaceutica to illustrate benchmarking projects. The emphasis is on how these companies use benchmarking to gain real results and new knowledge.

The authors explain the basics of benchmarking by casting it in terms of philosophy, perspective, objectives, targets, and defining features." They discuss eight steps in benchmarking -- initial problem solving; open communication; analysis and justification; communication and education; pilot testing; development of detailed plans for complete implementation; development of new performance measures; and recalibration of performance and benchmarking to determine parity and superiority."

Many think that benchmarking is an exercise in analysis and numbers. This book provides a greater understanding of the "people" aspect of benchmarking. The authors note that critical factors in engaging employees in benchmarking success include defining the objectives of the benchmarking process, having the willingness to accept criticism, and wanting to learn. Finally, McNair and Leibfriend emphasize that benchmarking can spark action and create a learning organization that can lead to superiority and achievement of competitive advantage.

FRANCHISING: THE BASICS

Our Workbook Series is designed to educate individuals who are interested in learning all about self-employment in their own franchised business. Our educational programs do not take into consideration any specific type of franchise, franchise relationship or structure, but rather looks at self-employment as a sequential process. This is the "core" architecture for how franchising operates. This workbook provides a nuts and bolts discussion of franchising what it is, how it works and its advantages and disadvantages.2

AN OVERVIEW

"Franchising", quite simply is a method of doing business. It is an alternative, for many executives, to expand their companies without having to incur the costs of building or staffing business locations. Through the years it has proven to be a very effective way to build a "chain" or "distribution network" comprised of many small business owners all operating under a "common banner" or name..

For instance, the McDonalds Corporation relies on independent business owners to make sure their hamburgers and other products reach consumers in a consistent manner. Sir Speedy's retail locations are owned and operated by independent business owners and not employees. The same is true for many other companies, including Burger King, Holiday Inn, Boston Market, ServiceMaster and so on.

The list of companies who utilize franchising, as a means of growing their businesses, is impressive with many other well-known companies you would recognize instantly. Consider this, the chances of these companies raising enough money and hiring enough quality people, to expand their companies on their own, is highly unlikely. In fact, the only way some of the world's greatest companies have been able to expand is because they have franchised their businesses. In turn, they have created business opportunities for individuals, interested in self-employment, which under normal circumstances would never have been made possible.

In its simplest form franchising consists of two business groups: the franchisor (the company doing the franchising), and the franchisee (the independent business owner who buys a franchise).

2 Source: www.franchisecentral.com/page2.html



The franchisor is the company who has developed a successful business and wants to or needs to expand it, but cannot do it all on their own.. The franchisor may have a very successful business but may lack sufficient money, or people, or time to expand the business as fast as they would either like or is necessary, due to competition. Therefore, "franchises" are created and are marketed to franchisees, people like yourself who are interested in self-employment, who acquire the rights to duplicate the franchise company's business.

These franchises can come in many business structures such as single-unit franchises which give an individual the right to develop and operate an individual location to multi-unit or territorial franchises which allow for the development of larger regions, of the business,

Franchising is not limited to specific industries or business types. It is used by thousands of companies in over forty different industry groups or sub-groups. It is a very powerful way to expand a business and the growth or speed in which a company can grow can be very significant.

Franchising has created many huge success for both Franchisors and their Franchisees. However, it is not right for everyone and you must understand everything you can about it before you make the significant decision to become a franchisee of someone else's business system.

WHAT IS FRANCHISING

Franchising has been described as a relationship between a company, doing the franchising, and an independent businessperson, in which the businessperson receives a limited "license" to certain rights, characteristics and elements, of the business. In many cases this includes the identity, imagery and operating experiences, of the company doing the franchising.

Essentially, the company who owns or has developed a business or product (the franchisor) grants to others (the franchisees) the ability to offer, sell, or distribute the products or services, which are closely associated with the franchisor's business system, trademark, service mark, trade name logo, advertising formats, or any other commercial symbol.

Business Format Franchising, is the more commonly used form of franchising in today's business environment. Under business format franchises, franchisees purchase essentially a "clone" of the franchisor's business and agree to follow pre-set specifications in its operation.

Franchise ownership can take a number of forms. In addition to the familiar single-unit arrangement, some franchise companies offer Area or Multi-unit Franchises, where the franchisee is expected to develop multiple facilities, in a specific marketplace.

Others offer master franchising or sub-franchising agreements under which a franchise owner in turn offers or sells "sub-franchises" individual units to others. These franchise owners normally receive a percentage of all of the fees which are paid to the franchise company by their sub-franchises.

According to the United States Federal Trade Commission Rule on Franchising (1979), a franchise relationship exists when the following three (3) elements co-exist in the business relationship:

The company doing the franchising:

Grants a limited right to use their tradename, servicemark, logo or other advertising symbol, Sells the rights to use "systems" or "methods", associated with operating the "core" business, and Receives a payment in return for granting these rights.

In the case where the franchise company is also a manufacturer, the franchisee may only be purchasing rights to distribute specific products, without association with the parent company's name



and identity.. Beverage companies, oil companies, and automobile manufacturers, because of the nature of their business relationship with their bottlers and dealers, are considered part of a segment of franchising known as Product Franchising. Using the example of General Motors, their individual dealers market only Buick or Oldsmobile cars, without associating with General Motors

You might be interested to know that when anyone quotes or report on the scope and successes of franchising, the figures do include the significant contribution of the beverage, oil and automobile manufacturing industries.

THE HISTORY OF FRANCHISING

Many people ask, "Where did it all start?" However, few really know the answer. The original concept of franchising actually began centuries ago. The Pope, in an effort to collect taxes, allowed certain people the right to gather his due within a given geographical area. These "collectors" were allowed to keep a sizable portion of what they collected, and would remit the balance to the Pope. Hence, the very first franchise relationship of record.

During the Civil War, the first modern franchise was developed when the Singer Sewing Machine Company established a system of loyal dealers worldwide to market their sewing machines. Since that time, other aggressive companies have employed the franchising methods to expand into markets that would otherwise be unreachable because of the high costs and risk factors involved in massive expansion.

The modern era of franchising began in the 1950s when Ray Kroc, a milkshake machine salesman, first discovered a San Bernadino, California drive-in restaurant operated by the McDonald brothers. Impressed with the crowded parking lot and the tasty french fries, Kroc bought the rights to franchise the business, and went on to build one of the most successful companies in the history of American business. And he did it through franchising.

The reasons for franchising in those days were no different than they are today. Expansion of any business is risky and requires significant investments of capital and human resources (people) to run the locations. If a company lacks the money, required to penetrate new markets effectively, or the people it takes to run new locations they will seek alternatives to growth, which is what franchising is. Franchising limits the risk factor of growth, allows expansion to occur without the vast amounts of operating capital, and potentially creates an attractive profit picture, for the franchise owner, at the unit or operating level.

Franchising bridges the gap for the small business person to own his or her own business. It allows for the creation of business opportunities while doing it "under the banner and guidance" of a larger organization. This relationship helps ensure the potential success of the small businessperson because of joint cooperation, with other franchisees and the franchise company, in the areas of:

Purchasing, of products or raw ingredients; Advertising; Decision Making, problem-solving and networking; Training; Research and Development, and; Much more.

These, along with many others, are clearly advantages otherwise unavailable to the individual, independent businessperson. Additionally, proponents of franchising further proclaim, "there is no form of compensation greater than that of proprietorship." It is an established fact that company managers and employees do not exhibit the same degree of motivation as the person who has both income and investment to lose should the operation not succeed.



As a result, the success stories are endless. McDonald's, Burger King, HFS, Midas, Culligan, Century 21, Singer Sewing Machine, Kentucky Fried Chicken, General Motors, and Coca-Cola are only a few of the most visible examples. Today, doctors, dentists, opticians, attorneys, accountants, salespeople, and most other types of operations you can imagine are profiting from expansion via the franchise method.

The benefits to be gained through the proven method of franchise expansion are a matter of history. Correctly designed and implemented, franchising allows for successes to occur, which might not have happened otherwise. During his testimony before the Senate Small Business Hearings in 1970, John Brown Jr., then of "Kentucky Fried Chicken," estimated that, at the time, over $400 million dollars would have had to be spent to build the number of stores which they had under franchise at that time.

According to statistics provided by the International Franchisee Association, franchising represents well over a third of our nation's gross retail sales. The Naisbett Group, in a 1990 research study, commissioned by the International Franchise Association, indicated, "If the present trend continues, it is predicted that within five years franchising could account for up to 50% of all US retail sales."

The development of modern day franchise techniques have also enabled many US companies to penetrate the distant international markets which were previously beyond reach. Here are some of the industries where franchising has proven to be effective are as follows:

Accounting and Tax Services Greeting Services

Advertising Services Hairstyling, Haircare and Cosmetics

Automobile Rental and Leasing Health Aids and Services

Automotive: Muffler Shops Laundry and Dry Cleaning

Automotive: Transmission Repair Lawn, Garden Care and Florists

Building Products and Services Motels, Hotels and Campgrounds

Burglar and Fire Prevention Pet Products and Services

Business Products and Services Photo, Framing and Art

Carpet, Drapery and Upholstery Cleaning Printing and Copying Services

Cleaning Products and Services Rental Services

Employment and Personnel Real Estate Services

Entertainment Retail, General

Food: Convenience Stores, Shops and Supermarkets Retail: Clothing and Shoes

Food: Donut, Bakery and Cookie Shops Retail: Computer, Electronics and Video

Food: Restaurants and Quick Service Retail: Telephone, Products and Services

Furniture Refinishing and Repair Schools and Education

KNOWLEDGE MANAGEMENT

Emerging Perspectives. Outsights – written by Gene Bellinger. Summary. 3

Knowledge management is the hottest subject of the day. The question is: what is this activity called knowledge management, and why is it so important to each and every one of us? The following

3 Source: Gene Bellinger, www.outsights.com/systems/kmgmt/kmgmt.htm



writings, articles, and links offer some emerging perspectives in response to these questions. As you read on, you can determine whether it all makes any sense or not.

DEVELOPING A CONTEXT

Like water, this rising tide of data can be viewed as an abundant, vital and necessary resource. With enough preparation, we should be able to tap into that reservoir -- and ride the wave -- by utilizing new ways to channel raw data into meaningful information. That information, in turn, can then become the knowledge that leads to wisdom. Les Alberthal[alb95]

Before attempting to address the question of knowledge management, it's probably appropriate to develop some perspective regarding just what this stuff called knowledge, which there seems to be such a desire to manage, really is. Consider this observation made by Neil Fleming[fle96] as a basis for thought relating to the following diagram.

DATA OR INFORMATION?

A collection of data is not information. •A collection of information is not knowledge. •A collection of knowledge is not wisdom. •A collection of wisdom is not truth. The idea is that information, knowledge, and wisdom are more than simply collections. Rather, the whole represents more than the sum of its parts and has a synergy of its own.

We begin with data, which is just a meaningless point in space and time, without reference to either space or time. It is like an event out of context, a letter out of context, a word out of context. The key concept here being "out of context." And, since it is out of context, it is without a meaningful relation to anything else. When we encounter a piece of data, if it gets our attention at all, our first action is usually to attempt to find a way to attribute meaning to it. We do this by associating it with other things. If I see the number 5, I can immediately associate it with cardinal numbers and relate it to being greater than 4 and less than 6, whether this was implied by this particular instance or not. If I see a single word, such as "time," there is a tendency to immediately form associations with previous contexts within which I have found "time" to be meaningful. This might be, "being on time," "a stitch in time saves nine," "time never stops," etc. The implication here is that when there is no context, there is little or no meaning. So, we create context but, more often than not, that context is somewhat akin to conjecture, yet it fabricates meaning.

That a collection of data is not information, as Neil indicated, implies that a collection of data for which there is no relation between the pieces of data is not information. The pieces of data may represent information, yet whether or not it is information depends on the understanding of the one perceiving the data. I would also tend to say that it depends on the knowledge of the interpreter, but I'm probably getting ahead of myself, since I haven't defined knowledge. What I will say at this point is that the extent of my understanding of the collection of data is dependent on the associations I am able to discern within the collection. And, the associations I am able to discern are dependent on all the associations I have ever been able to realize in the past. Information is quite simply an understanding of the relationships between pieces of data, or between pieces of data and other information.

While information entails an understanding of the relations between data, it generally does not provide a foundation for why the data is what it is, nor an indication as to how the data is likely to change over time. Information has a tendency to be relatively static in time and linear in nature. Information is a relationship between data and, quite simply, is what it is, with great dependence on context for its meaning and with little implication for the future.



Beyond relation there is pattern, where pattern is more than simply a relation of relations. Pattern embodies both a consistency and completeness of relations which, to an extent, creates its own context. Pattern also serves as an Archetype with both an implied repeatability and predictability.

When a pattern relation exists amidst the data and information, the pattern has the potential to represent knowledge. It only becomes knowledge, however, when one is able to realize and understand the patterns and their implications. The patterns representing knowledge have a tendency to be more self-contextualizing. That is, the pattern tends, to a great extent, to create its own context rather than being context dependent to the same extent that information is. A pattern which represents knowledge also provides, when the pattern is understood, a high level of reliability or predictability as to how the pattern will evolve over time, for patterns are seldom static. Patterns which represent knowledge have a completeness to them that information simply does not contain.

Wisdom arises when one understands the foundational principles responsible for the patterns representing knowledge being what they are. And wisdom, even more so than knowledge, tends to create its own context. I have a preference for referring to these foundational principles as eternal truths, yet I find people have a tendency to be somewhat uncomfortable with this labeling. These foundational principles are universal and completely context independent. Of course, this last statement is sort of a redundant word game, for if the principle was context dependent, then it couldn't be universally true, now could it?

ASSOCIATIONS

So, in summary the following associations can reasonably be made:

Information relates to description, definition, or perspective (what, who, when, where) Knowledge comprises strategy, practice, method, or approach (how) Wisdom embodies principle, insight, moral, or archetype (why).

Now that I have categories I can get hold of, maybe I can figure out what can be managed. My example uses a bank savings account to show how data, information, knowledge, and wisdom relate to the principal, interest rate, and interest.

Data: The numbers 100 or 5%, completely out of context, are just pieces of data. Interest, principal, and interest rate, out of context, are not much more than data as each has multiple meanings which are context dependent.

Information: If I establish a bank savings account as the basis for context, then interest, principal, and interest rate become meaningful in that context with specific interpretations.

Principal is the amount of money, $100, in the savings account Interest rate, 5%, is the factor used by the bank to compute interest on the principal.

Knowledge: If I put $100 in my savings account, and the bank pays 5% interest yearly, then at the end of one year the bank will compute the interest of $5 and add it to my principal and I will have $105 in the bank. This pattern represents knowledge, which, when I understand it, allows me to understand how the pattern will evolve over time and the results it will produce. In understanding the pattern, I know, and what I know is knowledge. If I deposit more money in my account, I will earn more interest, while if I withdraw money from my account, I will earn less interest.

Wisdom: Getting wisdom out of this is a bit tricky, and is, in fact, founded in systems principles. The principle is that any action which produces a result which encourages more of the same action produces an emergent characteristic called growth. And, nothing grows forever for sooner or later growth runs into limits.



If one studied all the individual components of this pattern, which represents knowledge, they would never discover the emergent characteristic of growth. Only when the pattern connects, interacts, and evolves over time, does the principle exhibit the characteristic of growth.

Note: If the mechanics of this diagram are unfamiliar, you can find the basis in Systems Thinking Introduction.

Now, if this knowledge is valid, why doesn't everyone simply become rich by putting money in a savings account and letting it grow? The answer has to do with the fact that the pattern described above is only a small part of a more elaborate pattern which operates over time. People don't get rich because they either don't put money in a savings account in the first place, or when they do, in time, they find things they need or want more than being rich, so they withdraw money. This depletes the principal and subsequently the interest they earn on that principal. Getting into this any deeper is more of a systems thinking exercise than is appropriate to pursue here.

A CONTINUUM

Note that the sequence data -> information -> knowledge -> wisdom represents an emergent continuum. That is, although data is a discrete entity, the progression to information, to knowledge, and finally to wisdom does not occur in discrete stages of development. One progresses along the continuum as one's understanding develops. Everything is relative, and one can have partial understanding of the relations that represent information, partial understanding of the patterns that represent knowledge, and partial understanding of the principles which are the foundation of wisdom. As the partial understanding becomes more complete, one moves along the continuum toward the next phase.

EXTENDING THE CONCEPT

We learn by connecting new information to patterns that we already understand. In doing so, we extend the patterns. So, in my effort to make sense of this continuum, I searched for something to connect it to that already made sense. And I related it to Csikszentmihalyi's interpretation of complexity.

Csikszentmihalyi provides a definition of complexity based on the degree to which something is simultaneously differentiated and integrated. His point is that complexity evolves along a corridor and he provides some very interesting examples as to why complexity evolves. The diagram below indicates that what is more highly differentiated and integrated is more complex. While high levels of differentiation without integration, promote the complicated, that which is highly integrated, without differentiation, produces mundane. And it should be rather obvious from personal experience that we tend to avoid the complicated and are uninterested in the mundane. The complexity that exists between these two alternatives is the path we generally find most attractive.

What I found really interesting was the view that resulted when I dropped this diagram on top of the one at the beginning of this article. It seemed that "Integrated" and "Understanding" immediately correlated to each other. There was also a real awareness that "Context Independence" related to "Differentiated." Overall, the continuum of data to wisdom seemed to correlate exactly to Csikszentmihalyi's model of evolving complexity. I now end up with a perception that wisdom is sort of simplified complexity.



KNOWLEDGE MANAGEMENT: BAH HUMBUG!

When I first became interested in knowledge as a concept, and then knowledge management, it was because of the connections I made between my system studies and the data, information, knowledge, and wisdom descriptions already stated. Saying that I became interested is a bit of an understatement as I'm generally either not interested or obsessed, and seldom anywhere in between. Then, after a couple months I managed to catch myself, with the help of Mike Davidson[dav96], as to the indirection I was pursuing.

I managed to survive the Formula Fifties, the Sensitive Sixties, the Strategic Seventies, and the Excellent Eighties to exist in the Nanosecond Nineties, and for a time I thought I was headed for the Learning Organizational Oh's of the next decade. The misdirection I was caught up in was a focus on Knowledge Management not as a means, but as an end in itself. Yes, knowledge management is important, and I'll address reasons why shortly. But knowledge management should simply be one of many cooperating means to an end, not the end in itself, unless your job turns out to be corporate knowledge management director or chief knowledge officer. I'm quite sure it will come to this, for in some ways we are predictably consistent.

I associate the cause of my indirection with the many companies I had been associated with in the past. These companies had pursued TQM or reengineering, not in support of what they were trying to accomplish, but as ends in themselves because they simply didn't know what they were really trying to accomplish. And, since they didn't know what they were really trying to accomplish, the misdirection was actually a relief, and pursued with a passionit just didn't get them anywhere in particular. According to Mike Davidson, and I agree with him, what's really important is:

Mission: What are we trying to accomplish? Competition: How do we gain a competitive edge? Performance: How do we deliver the results? Change: How do we cope with change?

As such, knowledge management, and everything else for that matter, is important only to the extent that it enhances an organization's ability and capacity to deal with, and develop in, these four dimensions.

THE VALUE OF KNOWLEDGE MANAGEMENT

In an organizational context, data represents facts or values of results, and relations between data and other relations have the capacity to represent information. Patterns of relations of data and information and other patterns have the capacity to represent knowledge. For the representation to be of any utility it must be understood, and when understood the representation is information or knowledge to the one that understands. Yet, what is the real value of information and knowledge, and what does it mean to manage it?

Without associations we have little chance of understanding anything. We understand things based on the associations we are able to discern. If someone says that sales started at $100,000 per quarter and have been rising 20% per quarter for the last four quarters, I am somewhat confident that sales are now about $207,000 per quarter. I am confident because I know what "rising 20% per quarter" means and I can do the math.

Yet, if someone asks what sales are apt to be next quarter, I would have to say, "It depends!" I would have to say this because although I have data and information, I have no knowledge. This is a trap that many fall into, because they don't understand that data doesn't predict trends of data. What predicts trends of data is the activity that is responsible for the data. To be able to estimate the sales for next



quarter, I would need information about the competition, market size, extent of market saturation, current backlog, customer satisfaction levels associated with current product delivery, current production capacity, the extent of capacity utilization, and a whole host of other things. When I was able to amass sufficient data and information to form a complete pattern that I understood, I would have knowledge, and would then be somewhat comfortable estimating the sales for next quarter. Anything less would be just fantasy!

In this example what needs to be managed to create value is the data that defines past results, the data and information associated with the organization, it's market, it's customers, and it's competition, and the patterns which relate all these items to enable a reliable level of predictability of the future.What I would refer to as knowledge management would be the capture, retention, and reuse of the foundation for imparting an understanding of how all these pieces fit together and how to convey them meaningfully to some other person.

The value of Knowledge Management relates directly to the effectiveness with which the managed knowledge enables the members of the organization to deal with today's situations and effectively envision and create their future. Without on-demand access to managed knowledge, every situation is addressed based on what the individual or group brings to the situation with them. With on-demand access to managed knowledge, every situation is addressed with the sum total of everything anyone in the organization has ever learned about a situation of a similar nature. Which approach would you perceive would make a more effective organization?

And, if you think this is simply a fantasy, just drop by OutSights and consider the reality we're in the process of creating.


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