1. Knowledge Management Toolkit, TheBy Amrit Tiwana...............................................Publisher: Prentice HallPub Date: December 06, 1999Print ISBN-10: 0-13-012853-8Print ISBN-13: 978-0-13-012853-9Pages: 608Table of ContentsCopyrightPrefaceAcknowledgmentsPart I: The Rubber Meets the Road Chapter 1. Introduction Knowledge Management: A Goldmine or an Empty Piggy-bank? What This Book Is About What This Book Will Do How to Use This Book What This Book Is Not About Endnotes Chapter 2. The Knowledge Edge Getting to Why: The New World The Missing Pieces Accounting for Abnormal Differences A Common Theme Intellectual Capital The 24 Drivers of KM Knowledge-Centric Drivers Technology Drivers Organizational Structure-Based Drivers Personnel-Focused Drivers Process Drivers Economic Drivers Creating the Knowledge Edge Lessons Learned Endnotes Chapter 3. From Information to Knowledge From Data to Information to Knowledge From Data to Knowledge Classifying Knowledge The Three Fundamental Steps Knowledge Management Systems and Existing Technology Taming the Tigers Tail

2. Business and Knowledge Knowledge-Friendly Companies Knowledge-Sharing Companies Is Your Company Ready for Knowledge Management? Lessons Learned EndnotesPart II: The Road Ahead: Implementing Knowledge Management Chapter 4. The 10-Step KM Roadmap The 10-Step Knowledge Management Road map Phase 1: Infrastructural Evaluation Phase 2: Knowledge Management System Analysis, Design, and Development Phase 3: Deployment Phase 4: Metrics for Performance Evaluation Lessons LearnedPart IIA: The First Phase: Infrastructural Evaluation and Leverage Chapter 5. The Leveraged Infrastructure The Approach: Leverage, Leverage, Leverage Leveraging the Internet Enabling Technologies for the Knowledge Management Technology Framework Knowledge Servers Lessons Learned Endnotes Chapter 6. Aligning Knowledge Management and Business Strategy From Strategic Programming to Strategic Planning Knowledge Maps to Link Knowledge to Strategy Strategic Imperatives for a Successful KM System Assessing Focus Lessons Learned EndnotesPart IIB: The Second Phase: KM System Analysis, Design, and Development Chapter 7. Infrastructural Foundations Technology Components of the KM Architecture The Seven-Layer KM System Architecture Foundation for the Interface Layer The Web or Notes? Collaborative Intelligence and Filtering Layer Lessons Learned Endnotes Chapter 8. Knowledge Audit and Analysis Hindsight + Insight = Foresight Measuring Knowledge Growth The Knowledge Audit Team Choosing Your Companys K-Spots Lessons Learned Endnotes Chapter 9. Designing the KM Team Sources of Expertise Team Composition and Selection Criteria 3. Team Life Span and Sizing IssuesThe Knowledge Management Project LeaderThe KM Teams Project SpacePoints of FailureLessons LearnedEndnotes Chapter 10. Creating the KM System BlueprintAnalyzing Lost OpportunitiesThe Knowledge Management ArchitectureComponents of a Knowledge Management SystemDesigning Integrative and Interactive Knowledge ApplicationsBuild or Buy?User Interface Design ConsiderationsA Network View of the KM ArchitectureFuture-Proofing the Knowledge Management SystemLessons LearnedEndnotes Chapter 11. Developing the KM SystemThe Building Blocks: Seven LayersThe Interface LayerThe Access and Authentication LayerThe Collaborative Filtering and Intelligence LayerThe Application LayerThe Transport LayerThe Middleware and Legacy Integration LayerThe Repositories LayerLessons LearnedEndnotesPart IIC: The Third Phase: KMS Deployment Chapter 12. Prototyping and DeploymentMoving From Firefighting to Systems Deployment?PrototypingPre-RDI Deployment MethodsThe Results Driven Incremental MethodologyLessons LearnedEndnotes Chapter 13. The CKO and Reward StructuresFrom the CIO to the CKOThe Successful CKOReward Structures to Ensure Knowledge Management SuccessLessons LearnedEndnotesPart IID: The Final Phase and Beyond: Measuring ROI and Performance Chapter 14. Metrics for Knowledge WorkTraditional MetricsCommon Pitfalls in Choosing MetricsThree Ways to MeasureClassifying and Evaluating Processes 4. Alternative MetricsLessons LearnedEndnotes Chapter 15. Case StudiesSome BackgroundKnowledge Management in the Aerospace Industry: The Case of Rolls RoyceKnowledge Management in Sales and Marketing: The Case of Platinum TechnologyKM in Customer Support: The Case of NortelKM in the Semiconductor Industry: GaSonics InternationalThe Goal: Three Months to TargetKM Pilot Case: Monsanto Nutrition and Consumer ProductsLessons Learned Part III: Side Roads: Appendices Appendix A. The Knowledge Management Assessment KitThe 10-Step Populated RoadmapPhase 1: Infrastructural EvaluationPhase 2: Analysis, Design, and DevelopmentPutting It All Together Appendix B. Alternative Schemes for Structuring the KM System Front EndAlternative Structures Appendix C. Software ToolsSoftware Tools Appendix D. Resources on the WebKnowledge Management: Web PointersIntellectually Rich Companies SELECTED BIBLIOGRAPHYBibliographic References and Further Reading GlossaryCopyrightLibrary of Congress Cataloging-in-Publication DataTiwana, Amrit, The knowledge management toolkit: practical techniques for building a knowledgemanagement system/Amrit Tiwana.p. cm.Includes bibliographical references and index.ISBN 0-13-012853-81. Knowledge management. I. Title. 5. HD30.2.T59 2000658.4038--dc21 99-049321CIP 2000 Prentice Hall PTRPrentice-Hall, Inc.Upper Saddle River, NJ 07458All rights reserved. No part of this book may be reproduced, in any form or by any means,without permission in writing from the publisherPrentice Hall books are widely used by corporation and government agencies for training,marketing, and resale.The publisher offers discounts on this book when ordered in bulk quantities. For moreinformation, contactCorporate Sales Department,Prentice Hall PTROne Lake StreetUpper Saddle River, NJ 07458Phone: 800-382-3419; FAX: 201-236-7141E-mail (Internet): corpsales@prenhall.comPrinted in the United States of America10 9 8 7 6 5 4 3 2 1Prentice-Hall International (UK) Limited, LondonPrentice-Hall of Australia Pty. Limited, SydneyPrentice-Hall Canada Inc., TorontoPrentice-Hall Hispanoamericana, S.A., MexicoPrentice-Hall of India Private Limited, New Delhi 6. Prentice-Hall of Japan, Inc., TokyoPearson Education Asia Pte. Ltd., SingaporeEditora Prentice-Hall do Brasil, Ltda., Rio de JaneiroCredits for Chapter-opening QuotesChapter 3: Simon, H.A. (1988). "Managing in an information-rich world." In Y.K.Sketty and V.M. Buehler (eds.), Competing Through Productivity and Quality.Cambridge, MA: Productivity Press.Chapter 5:Foreword by Arthur C. Clarke, "Intelligent Software Agents" by RichardMurch, Tony Johnson, Prentice Hall (1998).Chapter 6:"What Life Means to Einstein: An Interview by George Sylvester Viereck,"for the October 26, 1929 issue of The Saturday Evening Post.Chapter 8: "The Speakers Electonic Reference Collection," AApex Software, 1994.Chapter 9: Rita Mae Brown.Chapter 11: From THE ART OF WAR by Sun Tzu, translated by Samuel B. Griffith.Translation copyright 1963 by Oxford University Press, Inc. Used by permission ofOxford University Press, Inc.Chapter 12: As quoted by Richard Murch and Tony Johnson in "Intelligent SoftwareAgents: Prentice Hall (1998)."Chapter14: L. Lodish, "Vaguely Right Approach to Sales Force Automation," HarvardBusiness Review, 52, 119124 (1979).DedicationTo SherryPrefaceReal knowledge is to know the extent of ones ignoranceConfuciusIn the quest for sustainable competitive advantage, companies have finally come torealize that technology alone is not that. What sustains is knowledge. It is in unchaining 7. knowledge that lies in your companys people, processes, and experience that the hope forsurvival rests. Peter Drucker warned us years ago, but its only now that companies havefinally woken up to the value of managing their knowledge and bringing it to bear upondecisions that drive them up or out of existence.If your organization is confused by vendor buzz and consultant pitches about how theyand their products can solve all your knowledge problems, be forewarned: Its not thateasy. Knowledge management (KM) is just about 35 percent technology. Whiletechnology is the easy part, its the people and processes part that is hard.The Knowledge Management Toolkit will provide you with a strategic roadmap forknowledge management and teach you how to implement KM in your company, step bystep. Technology should not always be mistaken for computing technology; the two arenot synonymous. Chapter 1, rather than this preface, introduces you to KM and to thisbook. Before you begin, a notational warning would be in order. Youll find a lot ofcitations because of the cumulative tradition that this book follows by choice. However,do not let this distract you; all that you need to comprehend a topic being discussed isfootnoted on the same page. You can safely ignore all endnotes without losing anyinformation (unless you want to trace bibliographic history). When a URL is mentionedin the text, you will likely find further information on it in Appendix D.Youll hear about the silver bullet, a term rooted in folklore of the American Civil War. Itsupposedly emerged from the practice of encouraging a patient who was to undergo fieldsurgery to bite down hard on a lead bullet "to divert the mind from pain and screaming"(American Slang, Harper & Row, New York, 1986). Youll soon realize that youve foundthe silver bullet of business competitiveness.Think of this book as a conversation between you and me. Remember to visit thecompanion site at http://www.kmtoolkit.com. I would love to hear your comments,suggestions, questions, criticisms, and reactions. Feel free to email me atatiwana@acm.org.Amrit TiwanaAtlantaAcknowledgmentsRobert Dubin pointed out as early as 1976 (Theory Building in Applied Areas, RandMcNally College Publishing Co., Chicago, 17-26) that there is probably a five- to ten-year lag between the time a theoretical modelwhich KM for a large part isbecomesfashionable in the real world. Its the thinkers who prepare the revolution and the banditswho carry it out. I could not even begin to truly acknowledge the intellectual debt that Iowe to thinkers like Ikujiro Nonaka, Karl Wiig, Tom Davenport, Bob Buckman, PeterDrucker, Michael Zack, Andrew Inkpen, Wanda Orlikowski, Marco Iansiti, and JamesBrian Quinn, who prepared the knowledge revolution and have long influenced my own 8. thinking. Special thanks are also due to Herbert Simon for his insightful comments. It ison the shoulders of these giants that this book stands.I would like to thank the people from the industry who made that initial leap of faith andembraced the value of knowledge management in their work, products, services, and as acenterpiece of their businesses. Among the many people I wish to thank for their supportare Elaine Viscosi at Intranetics Inc. for permission to use a sample Intranet deploymentdescribed as Urban Motors in Chapter 9; Michael Zack of Northeastern University;Chuck Sieloff of Hewlett Packard; Johanna Rothman of Rothman Consulting; JoniSchlender of Plumtree Corporation; Steve Shattuck of Alpha Microsystems; JeanHeminway of Xerox Corporation for her zealous support for the DMA/WebDAVstandards and the inputs that she provided; Susan Hanley at AMS Inc; Michael Davis ofOSIS; Ray Edwards of Lighthouse Consulting; Joni Schlender of Plumtree Software;Harry Collier of Infornotics, England; Jim Eup of Powerway; Mark Turner of the NaturalLanguage Processing Lab at Thomson; Jeff Barton of Texas Instruments for his insightfulanalysis of this book; Glenn Shimkus of Platinum Technology, Inc.; Rick Dove ofParadigmShift International; Thomas Davenport of Andersen Consulting and BostonUniversity; Mark Montgomery of GWIN; Fanuel Dewever of Newcom, Belgium; SteveSinger of CIO; Gord Podolski of Nortel Networks; Bettina Jetter of MindJet LLC forextensive information on mind mapping; Simon Tussler of the Boston Consulting Group;Mark Kawakami and others who I have inadvertently left out.I would also like to acknowledge the invaluable suggestions and unfailing support that Ihave received from my colleagues including Arjan Raven; Bala Ramesh, my mentor; andespecially Ashley Bush, who "lived through" several drafts of this book and helped methrough the many software crashes that come exactly in the middle of your best ideas in aWindows world. Thanks are also due to my close associates, Smiley and Tommy, withoutwhose help this book would have been a more formidable task.I would also like to thank Mark Keil, Daniel Robey, Richard Baskerville, and VijayVaishnavi at the J. Mack Robinson College of Business, from whom I have much learnedto strike the balance between rigor and relevance in research. Built upon the shoulders ofthe giants in information systems research, this book is my humble attempt at provingthat there is more relevance in the cumulative body of research that comes out of theivory towers than we usually get credit for.This book would have been an impossible task without the enthusiasm of my editor,Miles Williams, his able assistant Noreen Regina, and my initial contact at PHPTR, MarkTaub. The quality of this book also owes a lot to my technical reviewers includingCorinne Gregory of Data Dimensions, Chuck Fay of FileNet Corporation, and to myanonymous initial reviewers, for their suggestions. The credit for the readability of thisbook goes largely to my development editor, Mary Lou Nohr, whose insights, arguments,and suggestions helped me see the forest when all I could see were the trees. The visualappeal of this book owes much to the skills of Kerry Reardon. 9. Most importantly, I would like to acknowledge the support and encouragement that myfamily has provided me. Without them, this book would have been far from possible.Part I: The Rubber Meets the RoadChapter 1. IntroductionAs we gain more knowledge, we do not become certain, we become certain of more.Ayn RandIN THIS CHAPTER Define knowledge management (KM). Understand the noise about knowledge management. Understand why now. Evaluate knowledge managements value proposition Look beyond the buzz to see if there is anything "real" behind KM. Define what knowledge management is not. Understand if your company is ready for knowledge management.Data. At first we had too little. We asked for more and we got it. Now we have more thanwe want. Data led to information, but what we were looking for in the first place wasknowledge.As an increasing number of companies now realize that knowledge is their key asset, theywant to turn to managing this asset to deliver business results. Maybe you want tointroduce knowledge management (KM) in your own company.But where and how do you begin? What is behind the buzz? What is KMs valueproposition? What types of companies can actually begin knowledge management? Is it atechnology problem or a management problem? What happens to the millions that yourcompany has invested in information technology (IT) if it is replaced by yet anotherhyped "fix-it-all" technology? Can you build upon existing IT investments? What kindsof people, skills, and organizational structures are necessary to pull it off? How can KMbe aligned with your businesss strategy? Is there an architecture that you can use? Howcan you deploy KM in your own company? Are there any business metrics for it? Howcan you maximize payoff if you implement KM? Can your small business without deeppockets afford it? How do you know if your business is even ready for it? These are someof the questions that this book will help you answer.Knowledge Management: A Goldmine or anEmpty Piggy-bank? 10. Knowledge management might be "hot" as of today, but successful managers havealways realized its value. Long before terms such as expert systems, core competencies,best practices, learning organizations, and corporate memory were in vogue, thesemanagers knew that their companys key asset was not its buildings, its market share, orits products, but it lay in its people, their knowledge, and skills. After having triedeverything elsefrom the greatest products and the best technology to virtualmonopoliesin their respective markets, more businesses have finally come to therealization that the only sustainable source of competitive advantage is their knowledge.As Drucker fittingly warns us, "those who wait until this challenge indeed becomes a hotissue are likely to fall behind, perhaps never to recover."[1]Why Knowledge?Far from vendor sales pitches, a crying need for knowledge management is evident. Thisneed is a growing reality, worldwide: from Antigua to Zaire. The Scotsman reports that98 percent of senior managers in a KPMG survey believe that knowledge managementwas more than just a passing fad.[2] The London Times calls it the "fifth discipline" afterbusiness strategy, accounting, marketing, and human resources and called upon Britishcompanies to harness it to improve their performance and profitability.[3] The need isevident in Singapore, where The Strait Times reports that "organizations lack a strategy tomanage knowledge sharing among their staff." [4] Some organizations there, The StraitTimes reports, are not even sure what a knowledge management strategy is or how todevelop one. Of 75 senior managers interviewed in Singapore, only 3 of whom felt thattheir companies were even moderately effective at knowledge sharing, unequivocallyvoice their intent to make knowledge management their number one priority.[5]This sounds very much like the opinion that weve been hearing in the United States. Forgood reason: forty percent of the U.S. economy is directly attributable to the creation ofintellectual capital.[6] As companies fail to solve KM problems by plugging in "fix-it-all"technology solutions, echoes of the cultural complement needed to make these solutionsactually work are resounding far beyond the United States. David Hewson writes in theSunday Times, "the problem is culturalwhere the idea of making information availableto all, at every level throughout the company, frequently is anathema to managers." [7]Whats Knowledge?Knowledge and knowledge management are lofty conceptsdebated by academics andmanagers and even doubted by some analystsone that only a few businesses havemastered.[8] The few big businesses that have are the ones that now top the Fortune 500list and the few small ones top the Inc. 100 hot companies to watch list. Before wecontinue, here is a working definition of knowledge suggested by Thomas Davenport andLaurence Prusak, which we will refine as we proceed:Knowledge is a fluid mix of framed experience, values, contextual information, expertinsight and grounded intuition that provides an environment and framework forevaluating and incorporating new experiences and information. It originates and is 11. applied in the minds of knowers. In organizations, it often becomes embedded not only indocuments or repositories but also in organizational routines, processes, practices, andnorms.[9]So Whats Knowledge Management?Next, lets try getting a temporary handle on what knowledge management means. In thesimplest terms it means exactly that: management of knowledge. In the context of ourdiscussion, it can be extended to "management of organizational knowledge for creatingbusiness value and generating a competitive advantage." Knowledge managementenables the creation, communication, and application of knowledge of all kinds toachieve business goals.[10] Kirk Klasson elucidates, "Knowledge management is theability to create and retain greater value from core business competencies." Knowledgemanagement addresses business problems particular to your businesswhether itscreating and delivering innovative products or services; managing and enhancingrelationships with existing and new customers, partners, and suppliers; or administeringand improving work practices and processes.KMs Value PropositionThe ability of companies to exploit their intangible assets has become far more decisivethan their ability to invest and manage their physical assets.[11] As markets shift,uncertainty dominates, technologies proliferate, competitors multiply, and products andservices become obsolete rapidly, successful companies are characterized by their abilityto consistently create new knowledge, quickly disseminate it, and embody it in their newproducts and services.[12] In the postindustrial era, the success of a corporation lies deeplyembedded in its intellectual systems, as knowledge-based activities of developing newproducts, services, and processes become the primary internal function of firmsattempting to create the greatest promise for a long-term competitive advantage. KirkKlasson suggests that companies can reap an immense payoff when a knowledgemanagement solution makes it easier for practitioners to reach out to other practitionerswho share common problems or have experience to share. Why all this noise aboutknowledge management and why now? There are nine reasons for this: 1. Companies are becoming knowledge intensive, not capital intensive.Knowledge is rapidly displacing capital, monetary prowess, natural resources, andlabor as the quintessential economic resource.[13] Knowledge is the only input thatcan help your company cope with radical change and ask the right questionsbefore you attempt to find the answers,[a] for without this knowledge you mightnever even realize how your industrys competitive environment is changing untilits a little too late. It is this knowledge that brings quality into any companysproduct and service offerings.[b] Further, product life cycles and service time-to-market can be accelerated in unprecedented ways through knowledge. Knowledgemanagement is the only way to reach and apply this knowledge in time. [a] Asking the right questions and taking action based on such knowledge, Peter Drucker adds, usually double or triple knowledge worker productivity, and usually fast. 12. [b] Drucker also points out that unlike in the production economy, quality of work, decisions, and processes is at least as important as their quantity. eBay (market value, $22 billion), eFax ($200 million), CISCO ($190 billion), Pfizer ($150 billion), and Microsoft ($400 billion) are a few of several hundred thousand examples.2. Unstable markets necessitate "organized abandonment." Your target markets might undergo radical shifts, leaving your company in a disastrous position of being with the wrong product, at the wrong time, and in the wrong place. The impact of these forces is witnessed most prominently in high-technology environments[c] and financial markets, and increasingly in other markets as well. KM lets you undertake what Drucker calls organized abandonment: [14] reshape products, get out of projects and product lines that can pull your business down, and get into others that maximize growth potential. [c] Just-in-time (JIT) manufacturing, the driver of Toyotas success, for example, is more knowledge based than it is resource based. Also see B. Ramesh and A. Tiwana, Supporting Collaborative Process Knowledge Management in New Product Development Teams, Decision Support Systems (forthcoming), for an analysis of KMs role in high-technology businesses. National Semiconductors, an excellent example, closed down its division Cyrix Corporation, the well-known manufacturer of low-end Intel-clone microprocessors in 1999 when it realized that it was pulling the entire company down as it tried to withstand price-based assaults from mighty Intel, which had pockets deeper than those of National.3. KM lets you lead change so change does not lead you. KM is no longer needed by service-based businesses and consultants alone. Even conventional retailers like Wal-Mart consider their competence in logistics managementa knowledge- intensive activityto be their primary driver of business success. Drucker warns that no industry or company has a natural advantage or disadvantage; the only advantage it can possess is the ability to exploit universally available knowledge. He describes knowledge as "the window of opportunity." [d] After all, the next critical piece of critical information could take any forman evolving social trend affecting customer preferences, a new management practice, a nascent technology, or a political or economic development in a remote manufacturing location.[15] You cannot manage this change, Drucker reminds. You can only lead change, and stay ahead of it. [d]Drucker (1999, page 84) also indicates that many such opportunities arise from unexpected failure of competitors (such as in a sales pitch) and unexpected successes on your companys side. In a data-obsessed business environment where only 2 percent of grocery store scanner data collected is ever analyzed,[16] knowledge management can help you determine those points and see opportunities through these "windows" in processes where change needs to be led, before your competitors do. 13. 4. Only the knowledgeable survive. "The survival of the fittest firm" is an outmoded thought in the knowledge-based economy. The ability to survive and thrive comes only from a firms ability to create, acquire, process, maintain, and retain old and new knowledge in the face of complexity, uncertainty, and rapid change.[17] It becomes deterministic in the firms long-term survival. Drucker points out that knowledge is productive only if it is applied to make a difference (rather than simply exist) and suggests that it is this productivity that is going to be the deterministic factor in the competitive position of any company, or industry.[18] Knowledge management can make that a reality. When your company can apply its past experience for accelerating future work, why should you start every project with a blank sheet and then work feverishly, sometimes even desperately, to make the deadline on budget? Yet companies do it all the time, Connie Moore notes in CIO, [19] and in that mass stupidity lies the opportunity to differentiate your companys processes.5. Cross-industry amalgamation is breeding complexity. Drucker warns us that complexity, uncertainty, and ambiguity are the hallmarks of todays production and business systems irrespective of the nature of business or type of industry. Knowledge management has allowed many companies such as Bay Networks to turn this complexity to their advantage.[20]6. Knowledge can drive decision support like no other. Providing effective decision support by making knowledge about past projects, initiatives, failures, successes, and efforts readily available and accessible can make a significant contribution toward convalescing this process. Drucker lists four diagnostic tools for decision making that we will focus on: foundation, productivity, competence, and resource allocation knowledge. KM solutions that are capable of effectively supporting collaboration and knowledge sharing enable individual knowledge workers, teams, and communities to collaboratively make better decisions fasterand act on those decisions to create more economic value for their company.7. Knowledge requires sharing; IT barely supports sharing. KM requires a strong culture of sharing that information systems do not inherently support. In the United States, Tom Davenport has been feverishly supporting the idea of figuratively creating "water cooler cultures" in the same way as the Europeans have been demanding "coffee machine cultures":[21] environments that allow and systems that support social informality. Knowledge, as any witness to artificial intelligence research knows, "is not about machines, but about culture." [22] Principles that have traditionally driven IT design, though with moderate success, no longer apply in designing KM systems.8. Tacit knowledge is mobile. Too often when someone leaves your firm, his or her experience leaves too. This knowledge, skills, competencies, understanding, and insight then often go to work for a competitor. Knowledge management can save your company from losing critical capabilities when that happens.9. Your competitors are no longer just on the West Coast. We are becoming increasingly global, Drucker notes. Keeping up with developments and ensuing 14. threats or opportunities in other countries is a tedious, time-consuming, anddifficult process. Knowledge management technology, when given the rightsource feeds, can deliver relevant and timely knowledge.As companies shift from a product-centric form to a knowledge-centric form, it becomesessential to support various dimensions of this knowledge as a critical asset.Companiesbig or smallcannot afford to underinvest in using, reusing, and not losingknowledge that they already have. Knowledge management is therefore an imperative forcompanies that do not operate in purely cost-driven markets anymore.Why Now?Strategy driven by knowledge can help your company be what Drucker calls"purposefully opportunistic." Peter Drucker rightly points out that the most valuableassets of the twenty-first-century company are its knowledge and knowledge workers.[e]Drucker, like many others saw this coming for over 50 years. The recognition that thevalue of complex products rests not in the factories and buildings used for fabrication, butin the minds of people who created them, has been pronounced in the business world wellbefore Thorstein Veblen wrote about it in The Engineers and the Price System.[e]Drucker also compares these to production equipment and capital that were key to business success inthe twentieth century.Figure 1-1 shows the darling tools of managers as they evolved from the 1950s to the2000s. Some of these died much anticipated deaths as fads, and some live till this day.Notably, one consistent and pervasive thread runs through all theseabout leveragingknowledge, experience, intellectual assets, and their management. And this consistentthread has led businesses to what we now call knowledge management. Figure 1-1. Managers tools through the decades: Knowledge managementhas been coming since the 1950s. 15. In a global economy, Davenport and Prusak suggest, "Knowledge many be yourcompanys greatest competitive advantage." Having exhausted all other sources ofcompetitive advantage such as technology and market dominancenone of which havesustained their promisescompanies are befittingly placing all hopes in knowledge andits effective management. The value proposition of knowledge management is nowstronger than ever, as it is no longer a rare competitive differentiator but the onlydifferentiator.Who Should Be Pursuing Knowledge Management? 16. Two types of companies should be pursuing knowledge management. The first type isone that has realized the need to keep up with its competitors and remain a legitimateplayer through the process of maintaining knowledge that is core to its line of business.Core knowledge is the basic level of knowledge required before you can even "play thegame." [23] The second type is one step ahead: It already has the core knowledgenecessary. This company realizes that what is innovative knowledge today will becommonplace, core knowledge tomorrow. Such companies are struggling with theirability to keep ahead, not just viably compete. Drucker rings the warning bell andreminds us that knowledge workers have mobility unlike ever before.[24] Since yourcompanys capabilities rest between the ears of such knowledge workers, itscompetencies can, and often do, walk out, lured into your competitors corner office.Productivity of your companys knowledge workers, and in effect productivity of theirknowledge, determines the productivity of your company. Effective knowledgemanagement will allow you to unleash that productivity.Knowledge management can deliver equally astounding results in both small companiesand large. A survey of over a hundred CEOs in Ireland reported in The Irish Times,indicates how small-sized businesses are betting on knowledge management to get theircompanies in the otherwise minuscule Ireland ahead in international markets.[25] Thesame shift resonates in large companies. Gartner Group estimates that by the year 2003,over 50 percent of Fortune 1000 companies will depend on knowledge management andknowledge management systems to widen the gap between them and their competitors.[26]Whats Behind the Buzz?As with any other concept that businesses rush to adopt, KM has its share of consultantsout to make the "quick bucks." Youve probably heard vendors of photocopiers, printers,word processors, search engines, desktop PCs, wireless services, scanners, removablehigh-capacity disks, and enterprise software all make the same claim: Heres the ultimateknowledge management tool that will solve all your companys knowledge problems.Nonsense. Knowledge management is not a technology problem; it is a process problem.Technology is only an enabler. And this enabler can rarely, if ever, produce the sameresults in two different organizations.Within the noise however, is a concrete reality that has been around and will be long aftermost of these vendors have gone out of business. The business drivers behind the move toknowledge management are so compelling that most industry analysts insist that if yourcompany has not already started exploring knowledge management tools to harness itsintellectual assets, it soon must.[27]Knowledge management is here to stay; you either adopt it or begin counting the years tothe closure of your business as your competitors who accept its value leave you farbehind. This book hopes to separate the chaff from the grain.Under the Magnifying Glass 17. Knowledge management is much more than mere technology: It is a potent competitivetool for an ever more brutally competitive age of shrinking margins, shorter productdevelopment times, and fickle customers.[28] Competing on knowledge requires eitheraligning strategy to what your company knows or developing knowledge managementcapabilities required to support a desired strategy. Michael Zack warns that knowledgemanagement, to deliver competitive advantage, must be grounded solidly in the contextof business strategy. Only through such strategic grounding can your company effectivelyprioritize its investments in knowledge management and come out ahead of competitorswho have not grounded their efforts in business strategy.What Knowledge Management Is Not AboutKnowledge management is not solely a technology problem; it is partly a managementproblem. Only by aligning the two can you build knowledge management technology thatwill truly enable effective knowledge management. This focus will be evident throughoutthe rest of the pages in this book. To cleanse you of vendor sales pitches, let me firstclarify what knowledge management is not. Knowledge management is not knowledge engineering. Knowledge engineering has been a vital part of computer science but is barely even related to knowledge management. Knowledge management is a business problem and falls in the domain of information systems and management, not in computer science. Knowledge management needs to meld information systems and people in ways that knowledge engineering has never been able to. Knowledge management is about process, not just digital networks. Management of knowledge has to encompass and improve business processes.[29] Agreed that IT is the biggest enabler for effective knowledge management if used correctly. However, Drucker warns that focusing on the T and not the I in IT will deliver little. The T will never be used effectively if the people who are supposed to use it are not in the equation right from the start. "Without a way of capturing and integrating past knowledge, any development process can quickly dissolve into chaos." [30] Evidence from companies "loudly" suggests one thing: KM needs a knowledge culture driven by a performance- linked-to-reward system that encourages these knowledge workers to both pass along what they know and says "its okay to admit that you dont know something." [31] Knowledge management is not about building a "smarter" intranet. A knowledge management system can use your companys intranet as its front end, but one should never be mistaken for the other. Saying that your intranet is your knowledge management system is something as senseless as saying that a jetliner is the cockpit. The "just-add-water" approach traditionally used with packaged intranets collapses face down when used for knowledge management. The intranet is, however, a part of the equation that provides a stable messaging and collaboration platform.[32] 18. Knowledge management is not about a one-time investment. Knowledge management, like any other future-oriented investment, requires consistent attention over a substantial period of time even after it begins to deliver results.[f] KM critically requires metrics that allow businesses to measure its impact, provide room for improvement, and to provide a robust basis for resource allocation.[33] [f] Peter Drucker recommends that this attitude be carried on in new services and technology innovations as well. Knowledge management is not about enterprise-wide "infobahns." While enterprise integration helps, the primary focus of KM is on creating, getting, importing, delivering, and most importantly helping the right people apply the right knowledge at the right time. Knowledge management solutions must, therefore, reflect the way individuals and organizations have managed and shared information, albeit more effectively. Knowledge management is not about "capture." Document management vendors would have you believe otherwise, but knowledge management is not about capturing "knowledge." An inevitable loss of context occurs when documents are "sanitized" for use across the company. While a document management system lacks context, experience, and insight, it still has a marginal place in knowledge management technology. Knowledge, in its entirety, cannot be captured.[g] [g] The artificial intelligence community has been trying to capture tacit knowledge since the past 40 years with little luck.What This Book Is AboutA survey of 92 U.S. companies by the Giga Information Group reported in CIO in late1998 reveals panic as many business managers ask their IS (information systems)organization to "do something" about knowledge management because theyve heard thatKM will become the next big competitive differentiator.[34] Dead wrong. Knowledgemanagement is not the "next big differentiator"; it is the only competitive differentiatorleft. Where do managers like this turn? To software vendors or management consultants.Neither management tools nor software solutions are comprehensive solutions; they aregeneralized treatments created for generalized problems. They are not created with yourcompany in mind. They do not come bundled with an intimate knowledge of yourcompanys history, culture, experience, goals, realities, or problems. If shrink-wrappedsolutions like Windows do not "plug-and-play" perfectly in your company, it is far-fetched to assume that either these "trademarked theories" or software tools will.Thank You, Dr. DavenportTom Davenports 1998 bestseller, Working Knowledge: How Organizations ManageWhat They Know (Harvard Business School Press), was perhaps the key to a surging 19. business interest in knowledge management. Ever since the Japanese scholar IkujiroNonaka popularized the idea in his 1995 book, The Knowledge Creating Company(Oxford University Press) and a 1991 Harvard Business Review paper by the same name,companies had been toying with the idea, but only a few realized early on that knowledgemanagement was coming. Amidst Peter Druckers cry for a knowledge focus in his 1993book, The Post Capitalist Society (HarperBusiness Press), companies were still strugglingto compete with technology. Herbert Simons drum beat is being heard twenty years toolate.Nonakas treatment, although a seminal contribution, unfortunately was toophilosophically theoretical for business to actually apply. Davenports bookthe pioneerin business knowledge managementprovided an initial direction to businesses thatactually wanted to adopt knowledge management. Davenport stresses the need for linkingknowledge management to business goals but does not show how to do it. It illustratesexcellent applications of technology but does not provide companies guidance on how tobuild knowledge management solutions for themselves. It does not describe knowledgemetrics and teaming. In short, it provides an excellent overview of knowledgemanagement but provides little guidance on how companies can actually do it. Nor werethese pragmatics objectives of that book, but they are the objectives of this book. Icontinue where Tom Davenport left off.What This Book Will DoThis book seeks to bridge the gap between knowledge management theory and practice.It shows you how you can implement both a knowledge management strategy and aknowledge management system in your company. It helps you ask the right questionsnot attempting to give you generic answers to unasked generic questions. It provides youwith practical guidance on linking knowledge management to business strategy ratherthan approaching KM from a technically biased or impossible-to-implementphilosophical perspective. A 10-step roadmap, each step of which is illustrated with real-life examples, guides you through the process of actually implementing knowledgemanagement in your company.The 10-Step Roadmap Helps YouThis book walks you through a road map with four phases involving 10 different stepsthat will help you leverage your companys existing infrastructure; design, develop, anddeploy a knowledge management system that is aligned with your business strategy, ontop of existing infrastructural capabilities; undertake cultural and organizational changesthat can make knowledge management succeed in your company; and show you ways toevaluate both its effectiveness and return on investment.Identify Knowledge That Is Critical to Your BusinessThis book helps you understand how knowledge management contributes to yourcompanys economic value and competitiveness. It explains the difference between 20. information management and knowledge management, guides you through the process ofidentifying knowledge that is critical to your own business processes, helps you identifyopportunities for exploiting this knowledge through its effective management andapplication. KM, however important, is not for every company: This book will help youdetermine whether or not your company is ready for knowledge management.Align Business Strategy and Knowledge ManagementBusiness vision operates at a high level of abstraction, and systems development needslow-level details and specifications. This book helps you raise knowledge managementsystem design to the level of business strategy and pull strategy down to the level ofsystems designwithout undermining either. Through an analysis of the nature of yourbusiness, this book helps you balance codification versus personalization, knowledgeexploration versus exploitation. It will also guide you through the process of making astrong case for knowledge management to effectively "sell" it to both your potential usersand senior management.Analyze Knowledge Existing in Your CompanyYou must begin with knowledge that already exists in your company in various forms.This book will describe the process of assembling an appropriate knowledge audit team,the actual steps involved in the audit process, and the methods for analyzing implicationsof those results on the systems design.Build Upon, Not Discard, Existing IT InvestmentsThe value of supporting knowledge management with technology comes from leveragingexisting IT investments. This book shows you how you can build further upon theseinfrastructural pieces and identify which components can be used as is and which needfurther development. We discuss how existing networks, GroupWare, intranets, datamining tools, collaborative platforms, and data warehouses differ from the knowledgemanagement system itself and how these might fit. We will also examine emergingtechnologies such as intelligent agents and their potential use in your system, the level ofcomplexity associated with their development, and cost-reduction alternatives.Focus on Processes, and Tacit, Not Just Explicit KnowledgeTacit knowledge is perhaps the most important component of knowledge that exists inyour company and one that is least supported by IT. This book helps you incorporatesupport for tacit knowledge sharing and transfer, rather than repeat the same old mistakeof ignoring it as information systems design has done to this point.Design a Future-Proof, Adaptable KM System ArchitectureThis book describes the seven-layer knowledge management system architecture andguides you through the process of customizing it specifically for your own company 21. through a series of diagnostic iterations. We will also analyze the appropriate choice ofcollaborative platform based on your projects strategic leanings and past investments.This book further helps you "future-proof" this blueprint so that it is immune totechnological changes that could threaten its usability a few years down the road.Build and Deploy a Results-Driven KM SystemThis book shows you how to use results-driven incrementalism (RDI methodology) sothat each increment in your system is based on the previous increments results. In otherwords, the entire system is driven by business results, avoiding common pitfallsbothcultural and technicalthat such a system is vulnerable to. Well also analyze the processof selecting pilot deployments before the system is introduced on an organization-widescale.Implement Reward Structures, Leadership, and Cultural EnablersNeeded to Make KM WorkThis book shows you that having a chief knowledge official (CKO) is not always a greatidea. It will help you evaluate the need or lack of need for a CKO or equivalent manager.It will help you determine the type of knowledge-sharing culture and KM-friendly rewardstructure that is needed to make knowledge management work in your company. Throughseveral examples of companies that have been very successful even with moderatetechnology and those that have failed miserably even with the best technology, I illustratethe criteria that might work in your own company.Calculate ROI and Apply Knowledge MetricsA common myth is that knowledge management returns on investment (ROI) cannot becalculated. This book shows you that both the long-term and in the short-term benefits ofKM can be accurately calculated, although with difficulty. Many managers whom I haveinformally surveyed have complained that without tangible short-term results, it isdifficult to sustain senior management support for knowledge management. This bookdemonstrates how ROI from KM can be calculated both in dollar figures for the shortterm and in terms of tangible competitive gains in the long term. Well analyze thebalance that needs to be struck between these two temporal measurements and ways ofdetermining that balance point for your own company.Learn From War StoriesAnd, yes, this book does include "war stories" from managers who have struggled withthe concept of knowledge managementsome have become KM legends and some stillneed this book! There are high-profile knowledge management pioneers, and then thereare market leaders who fell victims to disruptive technologies and practices. Such warstories and results from early adopters are interesting examples but dangerous strategiesfor reasons that I will soon describe. 22. Why Not the "M" Word?The following chapters provide a roadmap that I will refrain from calling a methodology.The term methodology connotes a process that can be carried out in almost the same wayin just about any company and still deliver the same results. No two companies areexactly the same. Calling the process of knowledge management implementation amethodology undermines both its company specificity and its complexity. Every phaseand, in turn, step on this roadmap will help you develop a knowledge managementstrategy in the context of your own company. By focusing on the right questions, you canarrive at answers that are right for your situation.General Warning: "Managerial Instinct Not Included"The 10-step roadmap provides you with a tool, a mechanism, an enabler towhich you need to add the most important ingredient: your instinct. Thisincludes intimate knowledge of your own company, its existing culture, itsstrategic focus, and its unique problems. Through every step on this roadmap,youll find the answers to both developing KM strategy and a strategicallyaligned KM system by asking the right questions. Every step is illustrated withexamples of both successes and failures.These are not examples to blindly follow but examples to help you comprehendthe intricacies of the KM design process. You will find recommendations fordesign. You must take these recommendations and judge their fit relative toyour own company. This book serves you as a toolkit, but no one else but yourown team can use this toolkit to develop a knowledge management solution thatworks in your company. Implementing knowledge management sounds easierthan it actually is, but dont let this keep your company from starting now. Theremight never be a second chance.How to Use This BookIn spite of the hyperlinked, Weblike world we live in, I highly recommend that you goagainst that notion and read this book in a linear fashion: Begin with Chapter 1 andcontinue through Chapter 4. Once you reach Chapter 4, if you have a strong reason tojump to any other chapter, do so. Chapters 5 through 14 make the most sense if you readthem after youve read Chapter 4. The reason for this recommendation is simple: Each ofChapters 5 through 14 represent one step of the 10-step roadmap that I introduce inChapter 4. The 10-step roadmap appears at the beginning of each of Chapters 5 through14, with details of the current step highlighted in the respective chapters. As with anyroadmap, this serves the purpose of a "you are here" sign. The accompanying CD-ROMincludes an interactive version of the road map and customizable analysis forms that 23. appear throughout this book. Every chapter but Chapter 1 ends with a "Lessons Learned"section that summarizes the key points covered in that chapter. This might be useful as achecklist when this book is not gathering dust on your bookshelf.Chapter 16 discusses software tools that might be relevant to your own knowledgemanagement system. Some of these are also included on the companion CD-ROM. Most,though not all, tools on the CD-ROM have feature restrictions of some type. They arethere not to give you entire software suites to help you cut down the expense of buildinga knowledge management system or to charge you an extra five dollars for a CD-ROMthat cost only 50 cents to produce. These tools are here because I believe that they addvalue and help you make better sense. They are here for you to actually be able to see thetechnologies that we talk about in the chapters that follow.How This Book Is OrganizedTable 1-1 summarizes the organization of this book. An additional table in Chapter 4(Table 4-1) leads you through the individual phases and steps of the knowledgemanagement roadmap.Table 1-1. How this book is organizedChapter What is coveredPart I: The rubber meets the roadChapter 1 Introduction, KMs value proposition.Chapter 2 Imperatives for KM, its need, potential business benefits of KM.Chapter 3 How to make the transition from IM to KM, topologies of knowledge, differences between ITtools and KM tools, why KM is difficult to implement.Part II: The Road Ahead: IMPLEMENTING KNOWLEDGE MANAGEMENTChapter 4 10-step roadmap for implementing knowledge management in your company.Part IIA: The First Phase: Infrastructure EVALUATION AND LEVERAGEChapter 5 The role of IT in KM, tools and enabling technologies that can be used tobuild a knowledge management system upon your existing IT infrastructure.Chapter 6 How to align business strategy and knowledge management in your company, creatingknowledge maps, analyzing strategic knowledge gaps to fill with KM, how to "sell" KM inyour company.Part IIB: The Second Phase: KM System Analysis, Design, and DevelopmentChapter 7 How to lay the infrastructural foundations of your companys knowledgemanagement system and choose the collaborative platform, the seven layersof the KM architecture. 24. Table 1-1. How this book is organizedChapterWhat is coveredChapter 8 Audit, analyze, and identify existing knowledge assets and candidateprocesses in your company.Chapter 9 How to design a right-sized and well-balanced knowledge management team.ChapterHow to create a knowledge management system blueprint customized for10 your company, define the seven layers of the KMS architecture, "future- proof" your design.Chapter 11 How to develop the knowledge management system, understand how it can be integrated with existing technology standards such as WebDAV and DMA.Part IIC KMS DeploymentChapterHow to deploy the system using the results-driven incrementalism12 methodology, select pilot projects, maximize payoffs, avoid common pitfalls.Chapter 13 Understand the reward structures, cultural change, and leadership needed for making knowledge management successful; in your company, decide if you need a CKO or equivalent manager.Part IID The Final Phase and Beyond: Measuring ROI, Evaluating PerformanceChapterDecide which metric(s) to use for knowledge management in your14 companybalanced scorecards, quality function deployment, Tobins q and how to use it, arrive at lean metrics that help you calculate ROI on your KM project.ChapterCase studies and examples of knowledge management projects in U.S. and15 European companies, early adopters, successes, and failures.Appendix Knowledge management assessment kit and CD-ROM forms.AAppendix B Alternative structural approaches for the knowledge management front end.PART III: SIDE ROADS: APPENDICESAppendix Software tools and CD-ROM documentation.CAppendix Web resources and pointers.DAppendix E Bibliography and further reading. 25. Assumptions About Your CompanyThere are certain assumptions that I make about you as a reader of this book. I wouldhope that most, if not all, of these are true if this book (which is written with theseassumptions about you as a reader in mind) is to help you and your company withimplementing knowledge management.My first assumption is that you are neither a diehard propeller-head nor a manager whocant remember how to check his e-mail every morning. In other words, irrespective ofyour technical or managerial background, I assume that you at least have an appreciationfor both the significance and limitations of technology and corporate culture. KMrequires an appreciation of the fact that neither culture nor technology can independentlyprovide a strong KM solution. KM design and strategy formulation is at least as much amanagement issue as it is a technical one. I am assuming an open mind there. And yes, adiehard PalmPilot user qualifies as an acceptable reader!I also assume that your company already has a company-wide network in place and thateveryone is probably connected to the Web at work. If this assumption is violated, youwill need to do some serious work on creating such a network to build the transport layerof the KMS architecture in your company.I also assume that your company is not at a stage where information paucity itself is theproblem. If that is the case, then you are probably not ready for knowledge managementas approached in this book. I further assumesince you are reading this bookthat youhave been previously exposed to the idea of knowledge management or at least haveheard that companies are beginning to invest in knowledge management. I further assumethat you realize that most of the information flowing through and stored in yourcompanys information systems is explicated.My Vocabulary: More than Words Can SayThis book also rests on some of my own assumptions and vocabulary nuances. This bookuses the terms firm, company, and business unit interchangeably. The techniquesdescribed in this book need not always be applied across the organization; they can beapplied at the level of communities of practice. [h] These communities can be as small as aspecific department or a division, intermediate such as several departments, or as large asan entire enterprise. In any case, by calling your business unit a firm, I assume that yourbusiness operates at least like a for-profit organization.[h]Communities of practice, a description proposed by Etienne Wenger, refers to informal networks ofpeople who share common objectives, interests, or solutions.I also assume that you will use the process described in the 10 steps of the four phases toarrive at your knowledge management design and not flip directly to Chapter 15 and tryusing a case as your KM strategys basis. A roadmap is like a mapit provides directionbut you do the driving. In contrast, a methodology is like a shortcut to arriving at the 26. destination. Figuratively speaking, its like taking a flight (that flies all its 300 passengersin exactly the same way) rather than going the harder and longer way, i.e., driving. But,just an activity as highly structured and "shrink-wrapped" as taking a flight gets you andeveryone else to the same destinationthe airport, a methodology gets you to the sameplace as your competitors. A uniquely tailored roadmap helps you take your owncompany into account to build a KM system and KM strategy that is hard for yourcompetitors to imitate.I use the term CKO with much disdain for the title. Since this term is an easy descriptor, Iuse it to refer to anyone in your company who plays the CKOs role, whether its you, asenior manager, a senior IT manager, a knowledge champion, a strategist, or any one elsein your company who actually plays the lead role of a knowledge management evangelistor proponent.What This Book Is Not AboutI have explained what this book is about. Let me also explain what this book is not aboutand what it is that distinguishes this books approach.[35] This book is: Not about trends: This book is not about trends. Trends change: That is whythey are called trends. The principles that this book is based on come from yearsof cumulative research that has withstood the test of time. Youve probably heardthat organizations are now becoming decentralized, dis-intermediated, organic,flattened and T-shaped. Youve probably heard this in knowledge managementconferences and books that attempt to forecast the future. The methodology forsuch forecasts is often an extrapolation from recent developments and past data.Such extrapolation, as all research, weather forecasts, and stock markets suggest,is rarely an accurate predictor of the future. What youll learn in this book willprobably still apply when organizations supposedly become e-shaped,intermediated, or inorganic. Rather than being a trend in itself, this book will helpyou benefit from those trends. Not about new vocabulary: This book is not out to invent new buzzwords. Youwont hear about the infobahn, just-about-anything.com, cyber-space, cyber-economy, cyber-knowledge, or cyber-anything. Buzzwords come and go,knowledge management is here to stay. Not about the silver bullet: This book is not the silver bullet for knowledgemanagement and does not claim to be one either. It is not about trademarkedmethodologies that promise the world but scarcely deliver a village. If you areactually reading this book, then you have probably already found the silver bulletthat youve been looking for: knowledge. Not about socialism: This book assumes that you are in business because you areout to achieve "something" beyond the general good of society. For mostbusinesses this good is cold hard cash, for some it is not. My assumption is thatyour company is out to survive and compete.[i] 27. [i] Government and nonprofit organizations are not excluded by this characterization: The U.S. Postal Service, for example, is a competitive not-for-profit capitalist "company" that competes against the likes of FedEx and UPS. Knowledge, as this book deals with it, is not without a purpose and a business objective. Not about analogies: Business strategy is business strategy. Analogies can sometimes be helpful but can also be very misleading. Analogies are an effective way of communicating strategies, but a very hazardous way of analyzing them. This book is not about analogies for running your business. Nowhere in the following pages will you find a discussion about how knowledge management is like ecology, bungee jumping, war, or making love. The same holds true of the cases discussed in this book. Cases are instances of strategies, not strategies themselves. Not about my opinion: Opinions can be wrong. Sometimes totally wrong. If Peter Drucker can have an opinion that was dead wrong,[j] so can your latest Armani-clad $800-per-hour consultant whom you might be betting your companys future on. This book is not built upon a couple of "best-practices adopted from my company" or my "brainchild" thoughts about how you should run your business, but on lessons learned from years of cumulative research spanning several countries and hundreds of companies, big and small, in diverse industries. Wherever there is an opinion, Ill tell you its an opinion and that opinion is not necessarily a fact. [j]See Peter Druckers own discussion in Management Challenges for the 21st Century, Harper Business, New York (1999).Let us begin by taking a closer look at how knowledge and knowledge management aregenerating a competitive edge for some companies, in the next chapter.Endnotes 1. Drucker, P., Management Challenges for the 21st Century, Harper Business, NewYork (1999). 2. Andriesz, Mike, Managing Knowledge, The Scotsman, Glasgow, Scotland, June 1(1999), 13. 3. Hoare, Stephen, Its True: Knowledge Is Power, The Times, London, May 24(1999). 4. Leow, Jason, Know What? Your Firm Needs a CKO, The Strait Times, Singapore,May 15 (1999), 53. 5. Tan, Audrey, Knowledge Sharing in Civil Service Moderate: Survey, BusinessTimes, Singapore, May 13 (1999). 28. 6. Klasson, Kirk, Managing Knowledge for Advantage: Content and Collaboration Technologies, The Cambridge Information Network Journal, vol. 1, no. 1 (1999), 3341.7. Hewson, David, Its Not What You Know , Sunday Times, London, April 25 (1999).8. Johnston, Stuart, and Beth Davis, Smart Moves, Informationweek, May 31 (1999), 1819.9. Davenport, Thomas, H., and Laurence Prusak, Working Knowledge: How Organizations Manage What They Know, Harvard Business School Press, Boston (1998), 5.10. Paul Quintas, Open University Professor of Knowledge Management quoted inOpen Eye: Head Back to the Business Cafe, The Independent, London, February4 (1999), OE9.11. Davenport and Prusak, Working Knowledge.12. See Blair, Jim, Knowledge Management: The Era of Shared Ideas, Forbes,September 22 (1997).13. See Hansen, M., N. Nohria, and T. Tierney, Whats Your Strategy for ManagingKnowledge? Harvard Business Review, MarchApril (1999), 106116.14. Drucker, Management Challenges for the 21st Century, 74.15. Abramson, Gary, The Thrill of the Hunt, CIO Enterprise, January 15 (1999), 3542.16. Davenport, Thomas, From Data to Knowledge, CIO, April 1 (1999), 2628.17. Dhurana, Anil, Managing Complex Production Processes, Sloan ManagementReview, Winter (1999), 8597.18. Drucker, Peter, The Post Capitalist Society, First edition, Harper Business Press,New York, (1993).19. Moore, Connie, KM Meets BP, CIO, November 15, (1998), 6468.20. For a detailed account of how Bay Networks ended up saving $10 a year throughknowledge management, see Peter Fabris, You Think Tomaytoes, I ThinkTomahtoes, CIO, April 1 (1999), 4652. 29. 21. Dempsey, Michael, Buzzword Has Already Made a Lot of Enemies: The Role ofthe Chief Knowledge Officer, Financial Times, London April 28 (1999), 2.22. Krochmal, Mo, Tech Guru: People Are Key to Knowledge Management, The NewYork Times, New York, June 9 (1999), quoting Laurence Prusak, executivedirector of knowledge management at IBM.23. Zack, Michael H., Developing a Knowledge Strategy, California ManagementReview, vol. 41, no. 3, Spring (1999), 125145.24. Drucker, Management Challenges for the 21st Century, 20.25. Small Firms in Tune With Knowledge Management, The Irish Times, Dublin,April 23 (1999), 61.26. Schwartz, Mathew, Wherefore Art Thou, CKO? May 20 (1999), CambridgeInformation Network Think Tank on Knowledge Management, URL:http://www.cin.ctp.com.27. Klasson, Kirk, Managing Knowledge for Advantage: Content and CollaborationTechnologies, The Cambridge Information Network Journal, vol. 1, no. 1 (1999),3341.28. Hewson, Its Not What You Know .29. Unlike business process reengineering, knowledge management is aboutsupporting critical processes such as business decisions with the right knowledgeat the right time. Also see Drucker, Management Challenges for the 21st Century,33.30. Iansiti, Marco, and Alan MacCormack, Developing Products on Internet Time,Harvard Business Review, SeptemberOctober (1977), 108117.31. White, David, Human Resources: Why Managers Really Believe Knowledge IsPower, The Guardian, London, April 10 (1999), 47.32. Lotus Challenges Microsoft in Knowledge Management Software Market,Businessworld, Philippines, February 16 (1999).33. Duffy, D., Knowledge Champions: What Does It Take to Be a Successful CKO?CIO Enterprise, November 15 (1998), 6671.34. Moore, KM Meets BP. 30. 35. This characterization is inspired by Shapiro, C., and H. Varian, Information Rules:A Strategic Guide to the Network Economy, Harvard Business School Press,Boston (1999).Chapter 2. The Knowledge EdgeA little knowledge that acts is worth infinitely more than much knowledge that is idleKhalil GibranIN THIS CHAPTER See how knowledge contributes to market valuation and corporate prosperity. Understand why knowledge can deliver a sustainable competitive advantage andincreasing returns. Know the key drivers of knowledge management. Realize how knowledge management helps avoid reinvention of solutions, loss ofknow-how, and repetition of mistakes. Understand how knowledge management can help companies deal with complexexpectations, intricate processes, compressed life cycles, deregulation,globalization, the need for predictive anticipation, and product-serviceconvergence.When engineers at Ford[1] looked back at their record-breaking bestseller, the FordTaurus, no one in the entire company could really place his finger on the reason why thecar had become such a runaway success. PalmPilot, the nifty little personal digitalassistant (PDA) made by 3COM,[a] became an instant bestseller as soon as it wasintroduced, gained a market share of several million and growing, and a huge followingof loyal and diehard fans that beats even that of the original Apple Macintosh (and since,the iMac). Two major companies, Texas Instruments[2] and Sharp,[3] released feature-richer, more powerful, and faster PDAs competing hard on prices, features, and value forthe consumers dollar. Texas Instruments Avigo, a PalmPilot lookalike, had all thefeatures of the PalmPilot plus some more, cost one-third as much and came with moresoftware and an infrared wireless data link to connect to laptops.[a]The PalmPilot was originally manufactured by US Robotics and later acquired by 3COM. In late 1999,Palm devices owned 70 percent of the hand-held computing device market share.With all those features, better prices, and arguably better value for money, it still couldnot stand up against the PalmPilot. If it was not price, features, or value for money, whatis the basis of competition between these products?Getting to Why: The New World 31. With an incredible $155 billion in sales, Ford Motor Company (www.ford.com) camesecond to General Motors (www.gm.com) on the 1998 Fortune 500 list. Taking classicalvalue determinants into account, all off the assets of this company add up to $280billion.[4] This makes it a rather immoderately wealthy company. Chrysler came seventhon the list, with $62 billion in sales and $60 billion in assets. Interestingly, even on aglobal level, Mitsubishi Corporation came in around the top of the Global 500 list with$179 billion in sales and $72 billion in assets.The Missing PiecesMicrosoft ranked 137th on the Fortune 500 list, with $12 billion in sales and $14 billionin assets. On first thought, it might seem almost unimpressive compared to giants likeGM and Ford. But a look at the market valuation of Microsoft reveals the other side ofthe story: It runs up to about $400 billion, far exceeding the market valuation of GeneralMotors, Ford, and Mitsubishi combined. Other companies include Microsofts longtimepartner, Intel, which ranked thirty-seventh on the Fortune 500 list. With $25 billion insales and a hard asset base of $28 billion, most of which is in the form of factories andsemiconductor chip "fabs"[b] in addition to factory and office buildings around the world;its market valuation comes close to $130 billion.[b]Fabs is a semiconductor industry term used to describe clean-room factories that manufacturemicrochips.Accounting for Abnormal DifferencesMonsanto, a company whose main line of business is drugs and artificial sweeteners,happens to be another one in the same league. Monsanto had $9 billion in sales, built onits asset base of $10 billion, yet the market value of $32 billion was approximately threetimes any of these figures. IBMs value, contributed in part by its acquisition of Lotus andLotus Notes, was $20 billion more than its annual sales of $78 billion.Table 2-1. Top U.S. Companies Based on Capital-Based Products and TheirHard AssetsCompanyAnnual sales ($Hard assets ($ Fortune Rank in 1998 billions)billions)Ford 1552802Chrysler 62 60 7Mitsubishi 17972 2 (Global rank)Source: All figures are quoted from 1998 Fortune 500 ranks. 32. However, if you take a closer look at how the value of a company is determined, you willnotice another measure called market valuation. In simple terms, this represents themeasure of value that the investors and markets associate with a company. It is only whenyou take into account these figures that you realize that the prosperity level of a firm isnot what it seems to be on the surface. These companies, even with assets running intotens or hundreds of billions, are less well off than they might seem at a first glance. Acursory glance at Tables 2-1 and 2-2 reveals the startling absence of companies with thehighest market valuations from the Fortune capital asset-based list. Market value, and notcapital assets or sales, drives the long-term health of a company.Table 2-2. Top Fifteen U.S. Companies With the Highest Market ValuesCompany Market valuation ($ billions)Microsoft $375General Electric$335Intel $200Merck $195Wal-Mart$194Pfizer$172Exxon $161IBM $159Coca-Cola $158Cisco Systems $155MCI WorldCom$152AT&T$149American International Group$141Lucent Technologies $134Citigroup $133Source: Forbes Inc. Data from TableBase.com, Feb 1999, updated June 1999.As Table 2-2 reveals, neither Ford, Chrysler, nor Mitsubishi even appears on the list ofthe top 15 companies with the highest market values. This ranking implies that neitherinvestors nor the markets perceive these capital-intensive, production-oriented companiesas having more value than even Citigroup, which comes last on the list. 33. At first these observations seem quite contradictory and out of the ordinary. But considerthe businesses that these companies are in: Microsoft makes operating systems such asWindows, Intel makes microprocessors that run Windows PCs, Merck and Pfizer produceinnovative drugs, Coke has enough loyal fans like me who refuse to drink Pepsi, Lucentinvented the transistor and now produces, among other things, semiconductor chips, andCitigroup operates in the financial markets, and Citibank is a major issuer of credit cards.None of these are "Internet" companies riding the fabled Internet stock bubble. These areall companies with "real" assets such as buildings, manufacturing facilities, equipment,and offices far lesser in value than their market valuation. Even the few odd ones herehave something in common with the rest: They are capital intensive but not capitalcentric anymore. Wal-Mart, for example, is not viewed as a discount store by investorsand not valued on the basis of what is on its shelves.Then what is the basis of their value?A Common ThemeYou might argue that our 15 leaders are all companies that have been around for a while.True, but lets take a look at Table 2-3. These are companies that are relatively new, manyof them started well after 1997. Several have market values approaching several tens ofbillions. Not all of them are Internet companies either.In 1998, Amazon.com, the leading online retailer of books, paid well over $100 millionto acquire a smaller Web-based company, PlanetAll (www.planetall.com). Amazon itselfhad yet to make money, yet its market value is approaching $20 billion, and its stockprice has been touching unbelievably high levels.One common theme that brings together all these companies and their very differentreasons for being successful. Companies like Microsoft, Intel, AMD, Cyrix, Netscape,Coca-Cola, eBay, eFax, and Yahoo share something that cannot be shown on the balancesheets and cannot be accounted for by the taxation department! Their intangibles: Brand recognition Industry-driving vision Patents and breakthroughs Customer loyalty, their reach Innovative business ideas Anticipated future products Table 2-3. Market Valuation of Some Recently Founded CompaniesCompanyMarket Valuation ($ millions)eBay $24,000Amazon.com $18,024 34. Table 2-3. Market Valuation of Some Recently Founded CompaniesCompanyMarket Valuation ($ millions)Priceline.com$15,000eToys Inc. $6,000Broadcast.com$4,000Infospace$2,300Go2Net (formerly MetaCrawler)$1,400Value America$1,034Marketwatch.com$712Xoom $700eFax $139Source: Yahoo Finance. Figures are as of June 8, 1999.Past achievementsGround-breaking strategiesWhether it is the creation of a new retail channel for books through the Web (Amazon),the creation of a graphical Web browser (Netscape), a technological applicationbreakthrough that can potentially kill the existing facsimile market (eFax),[c] or owningthe entire market share for PC operating systems and perceivably future operatingsystems as well (Microsoft)the achievement that might now seem very doable andfeasible. But what counts is the fact that they did it first and they did it almost right whenit was the least expected. These companies are driven by and valued for their knowledge,not their capital assets.[c] eFax allows its customers to send fax messages through conventional fax machines and delivers themthrough e-mail without charging the customer even a penny.These are business that both threaten to destroy existing businesses by competing in waysthat were never anticipated, or they are businesses that have created entirely new marketsby themselves. Just as Amazon-like businesses have the potential to replace brick-and-mortar bookstores, eFax has the potential to replace personal fax machine retailers, ValueAmerica has the potential to replace your local computer and appliance store,Marketwatch.com has the potential to replace your stockbroker, Priceline.com has thepotential to replace your travel agent, and Broadcast.com has the potential to replace allof your cable companies, neighborhood video rental libraries, and your televisionmanufacturers; their likes have the potential to replace your business. Worse still, theyhave the potential to eliminate your entire market. 35. Intellectual CapitalCompanies with high levels of market valuation are often companies with high levels ofintangible assets, often referred to as their intellectual capital. Intellectual capital mightbe any asset that cannot be measured but is used by a company to its advantage.Knowledge, collective expertise, good will, brand value, and patent benefits fail todirectly show up on conventional accounting documents. No wonder very few companies(like Microsoft with $14 billion in sales) with the highest levels of intellectual andintangible knowledge assets never make it to the upper echelons of the Fortune sales-based ranking list.A companys skilled people, and their competencies, market position, good will,recognition, achievements, patents, contacts, support, collaborators, leadership, "tuned-in" customer base, and reputation are some of those key intangible assets that are hard toput a dollar figure on, yet they represent most of the market value that these companieshave. Even some intangible assets such as reputation can do little to sustain your businessif you are Atlantas most reputable travel agent who still cant match Priceline.coms priceand servicein other words, value. In the end, the only competitive advantage thatsustains is knowledge. Knowledge management provides you the "window," as Druckerdescribes it, to see opportunity coming and act upon it by applying knowledge that isotherwise idle.Knowledge, Market Value, and ProsperityAs businesses shift from an asset-centric environment to a knowledge-centricenvironment, traditional value measures become increasingly fallible. When NetscapeCorporation (later acquired by America Online) went public a few years back, the marketvalued this $17 million company at $3 billion at the end of the very first day of trading.Considering the fact that the average company on Wall Street has a market-to-book valueratio of 3, Netscapes opening day trade ratio was a whopping 175. The reasons for thisare obvious. The market did not value the company on the basis of its buildings andcomputers but on the basis of its knowledge assets: its invention of the Web browser, itsinnovative projects, its patented technology, and its employee-founder Marc Andeersen(who invented the Web browser and continues to work for America Online since thatcompany acquired Netscape in 1998).Market value also matters to startups or growing small companies. Borrowing capital forexpansion into the rapidly opening international markets is not usually easy, since thetypical company cannot always offer compelling assurances to venture capitalists andexternal financiers. In a knowledge-based economy, this security is the value of itsintangible assets and their perceived future valuewhich carry more weight than lastyears balance sheet or income statement. Market valuation is a pervasive though riskydeterminant of its future potential and explains why companies like Apple[d] and Netscapeever got financed in the first place. 36. [d] The three-part PBS (www.pbs.org) documentary, Triumph of the Nerds, provides an interesting storyabout Apples financing, as told by its original venture capitalist. This series was later followed by anotherthree-part series by Robert Cringley, Nerds 2.0, which provides a historical account of the emergence ofthe Internet-centric computing business models that have driven several successful multi-billion-dollarstartups.Microsoft and KnowledgeApplicationKnowledge management can make a difference when it enables the applicationof knowledge. In the technology industry, companies that have prospered arenot the companies that invented new technology, but those that applied it.Microsoft is perhaps a good example of a company that had first relied on goodmarketing, then on its market share, and now on its innovative knowledgemostly external.The customer base it built for its Windows operating system was probably itsstrongest asset when it decided to seriously compete in the Web browser market.Microsoft, a latecomer to the Internet market, came to the sweeping realizationthat the Internet was going to change everything, including its own productmarkets. Its strategy took a U-turn in 1995 when it began focusing on theInternet (every software product that Microsoft made in 1999 worked with theInternet in some manner). Microsofts reputation and strong skills base, coupledwith its cash flow provided it with all it needed to compete in the car retailbusiness (www.carpoint.com), then the travel business (www.expedia.com), andmore recently in the toy business as well. Besides a strong brand recognition,the company leveraged its existing collective skills to plan for the future.When Microsoft began delving into the toy market in late 1998 with itsActimates series of electronic toys (including Barney and Arthur), it broughttogether its competitive advantage from manifold sources within Microsoft:marketing abilities, software capabilities, hardware skills, and its brand value.Bob Ingle, president of new media for Knight-Ridder, commented in Fortunethat "Microsoft is like Godzillait screws up but keeps coming!" A goodexample of a failed attempt was Microsofts online services division, MicrosoftNetwork, which failed to replace either America Online or the Internet. But thecompany learned. Microsoft is led by the richest man in the world; a fierce,tireless competitor who hires people with the same qualities. The company has$10 billion in cash, more than three times Knight-Ridders annual revenues.With approximately $6 billion invested in research and development in 1999,Microsoft is an exemplary case of a company that is learning to leverage thebiggest competitive advantage of all: knowledge. 37. Even though there is no publicized KM agenda within Microsoft, it has beenessentially managing knowledge all along. The critical difference betweenXeroxs legendary Palo Alto Research Center (PARC) and Microsoft is thatPARC created a lot of knowledge but Microsoft (and Apple) actually applied itto make the difference, create new markets, and generate economic value.The Back of the Envelope at Ford Motor CompanyFord manufactures a broad range of cars and trucks targeted at various consumersegments. A study done at Stanford University reveals how knowledge utilized in theconceptual design stage of a typical Ford car drives between 70 to 90 percent of its finallife-cycle cost.[5] Even though design accounts for only 5 percent of the final cost of atypical car, it influences 70 percent or more of the vehicles final cost. Similarly, material(as shown in Figure 2-1) constitutes 50 percent of the final cost of a typical car, but itsinfluence on the final cost is only about 20 percent.Figure 2-1. Seventy percent of Fords costs are driven by decisions made in the conceptual design stage, even though this process accounts for onlyfive percent of the actual cost of its typical car.Most conceptual design and decision making are done with canonical tools and "lowtechnology media" such as paper and pencil on the back of an envelope[6] because of 38. their flexibility and agility. Even with seemingly labor, and raw-material-intensiveproducts, Fords major cost drivers are its decisions in the design process. By perfectingthe design process, Ford can ensure that the price tags on its cars remain competitive. It isin companies like this, that we have always taken for granted in the conventionaleconomy, there lies the potential for effectively leveraging past experience and processknowledge to generate a sustainable advantage that can keep them far ahead of their pack.The 24 Drivers of KMKnowledge has been the staple source of competitive advantage for some classiccompanies (such as Coke) for hundreds of yearsnot exactly a new concept.[7]Turbulently changing environments, rapidly evolving technologies, and a different breedof knowledge workers create the demand for an entirely new organizational structure thatis process oriented, team based, brain rich, but asset poor. Except for rare cases ofintangible assets (such as Cokes formula) that do not grow if shared, knowledge grows invalue if it is appropriately shared.In the long run, technology, laws, patents, and market share fail; nothing provides anadvantage beyond temporary. Technology provided Citibank only a temporarycompetitive advantage when it first introduced the automated teller machine (ATM).Duplicating pieces of differentiating technology might be expensive, but not impossible.Before long, any technology that provides a competitive advantage to one businessbecomes a staple component of the services and products offered by any firm engaged inthat business. Citibank lost its advan tage when other banks started providing ATMservices. ATMs were then no longer considered an added value but expected value.Microsofts Hotmail service popularized e-mail systems that allowed users to check theire-mail through a conventional Web browser. Soon copied, the Web-based interface isnow a norm for most Internet service providers. What was originally an innovativetechnology application soon became a basic expectation in the consumer market.Let us examine 24 key drivers that make knowledge management a compelling case forbusinesses. Several, if not all, will probably apply to your business, irrespective of yourindustry. These drivers can be grouped into six broad categories as described below:Knowledge-Centric Drivers 1. The failure of companies to know what they already know. 2. The emergent need for smart knowledge distribution. 3. Knowledge velocity and sluggishness. 4. The problem of knowledge walkouts and high dependence on tacit knowledge. 5. The need to deal with knowledge-hoarding propensity among employees. 6. A need for systemic unlearning.Technology drivers 39. 7. The death of technology as a viable long-term differentiator. 8. Compression of product and process life cycles. 9. The need for a perfect link between knowledge, business strategy, andinformation technology.Organizational structure-based drivers 10. Functional convergence. 11. The emergence of project-centric organizational structures. 12. Challenges brought about by deregulation. 13. The inability of companies to keep pace with competitive changes due to globalization. 14. Convergence of products and services.Personnel drivers 15. Widespread functional convergence. 16. The need to support effective cross-functional collaboration. 17. Team mobility and fluidity. 18. The need to deal with complex corporate expectations.Process focused drivers 19. The need to avoid repeated and often-expensive mistakes. 20. Need to avoid unnecessary reinvention. 21. The need for accurate predictive anticipation. 22. The emerging need for competitive responsiveness.Economic drivers 23. The potential for creating extraordinary leverage through knowledge; the attractive economics of increasing returns. 24. The quest for a silver bullet for product and service differentiation.Many of these drivers fall in to multiple categories, a cross-tabulation of domains ofinfluenceillustrated using a wagons and horses metaphoris shown in Table 2-4.Let us analyze each of these drivers in order to understand why they make a compellingbusiness case for knowledge management. Table 2-4. KM Wagons, Their Contents, and Their HorsesWagonsContents (factors)Horses (drivers)(Category)Knowledge-Awareness Distribution Emergence Preservation { 1} , { 2} , { 3} , { 4} , 40. Table 2-4. KM Wagons, Their Contents, and Their HorsesWagons Contents (factors)Horses (drivers)(Category)CentricApplication Creation Validation { 5} , { 6} , [7], [13], [14], [19], [20], [23], [24]Technology Pressures Failures Influence Strategic use{ 7} , { 8} , { 9} , [8], [23], [24]Organizational Convergence Structural emergence Effects on structure { 10} , { 11} , { 12} ,StructureModerating influence of IT Impact of knowledge flow { 13} , { 14} , [15], [17], Deregulation Globalization of divisions Strategy[22]PersonnelCross-functional collaboration Functional convergence { 15} , { 16} , { 17} , Mobility Fluidity Levels of management Levels of{ 18} , [22], [10], [11], [2], employees Decision hierarchies[3], [5]ProcessHow-to Know-How Know-what Reuse and accuracy{ 19} , { 20} , { 21} , Responsiveness Strategy implementation{ 22} , [24], [23], [14], [8], [9]EconomicsBottom line effects Extraordinary leverage Increasing { 23} , { 24} , [1], [2], [4], returns Long- short-term considerations Long- short-[7], [8], [12], [16], [19], term goals[21]Legend: Numbers in brackets represent drivers in the list: { Primary drivers} [Secondary drivers]. Each broad category is shown as a wagon,and each wagon is pulled by several horses (third column, representing drivers).Knowledge-Centric DriversKnowledge-centric drivers for knowledge management emerge from the recognition ofthe business value of knowledge. The failure of companies to know what they alreadyknow, the need to improve work processes through improved distribution of knowledge,the need for overcoming barriers to flow and retention of knowledge, the need to unlearnwhat is no longer valid, and the culture of knowledge hoarding dominant in mostcompanies are a few of these drivers that we discuss next.Failure to Know What You Already KnowCompanies often dont know what they already know. This is almost always the rootcause of companies reinventing old wheels. The British patent office uses an interestingstory that makes this point. A major British chemicals company was developing a processthat had gone through several iterations in its pilot tests a few years ago. As the companyscaled up this process to its full production level, a flaw in the seemingly perfect solutionshowed up: A sludge deposit was produced at the bottom of the process tank. Thecompany, attempting to salvage its development, invested in further research hoping toeliminate this problem. Soon, the researchers realized that it was going to be a time-consuming and expensive proposition. As plans for an initiative were being finalized, a