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into one concept, from a KM perspective, it’s more useful to consider the constituent components individually, as shown in Exhibit 1.4.
The three major components of intellectual capital are: 1. Human capital. The knowledge, skills, and competencies of the people in the organization. Human capital is owned by the employees and managers that possess it.Without a KM system in place, when employees and managers leave the company, they take their skills, competencies, and knowledge with them.
2. Customer capital. The value of the organization’s relationships with its customers, including customer loyalty, distribution channels, brands, licensing, and franchises. Because customers often form bonds with a salesperson or customer representative, customer capital typically is jointly owned by employee and employer. The proportion of customer capital held by employees and employers depends on the relative contribution of customer loyalty to customer capital.
3. Structural capital. The process, structures, information systems, and intellectual properties that are independent of the employees and managers who created them. Intellectual properties are sometimes considered as a separate, fourth component of intellectual capital.
Each of the three major components of intellectual capital can be subdivided into finer levels of granularity, as shown in Exhibit 1.5. For example, for KM purposes, Human Capital is composed of three kinds of knowledge: tacit, implicit, and explicit knowledge.
Tacit knowledge is knowledge that is ingrained at a subconscious level and therefore difficult to explain to others. An expert machinist may be extremely skilled at operating a particular machine, for example, 17
E S S E N T I A L S o f K n o w l e d g e M a n a g e m e n t but be unable to instruct an apprentice on exactly how to duplicate his expertise. Most knowledge involving pattern recognition skills fall under the category of tacit knowledge. For example, a seasoned radiologist can generally look at a typical radiographic film of a patient’s chest and instantly decide if the film is normal or abnormal. However, eliciting the process that the expert diagnostician used to make her determination is virtually impossible.When forced to teach residents and students how to read radiographic studies, radiologists use a systematic approach, looking at bones first, then soft tissues, and so on, so that the learner has a place to start in the learning process. In fact, however, the system most radiologists teach isn’t the system that they use. Similarly, pathologists, like master chess players, use one system and teach another.
Implicit knowledge, like tacit knowledge, typically is controlled by experts. However, unlike tacit knowledge, implicit knowledge can be extracted from the expert—through a process termed knowledge engineering. For example, an expert at assigning risk to insurance prospects might use the risk heuristics discussed earlier, assigning risk as a function of age and marital status. Once a new employee is given the same heuristics, either in the form of a set of rules or drawn as a decision tree, he or she can make a risk assignment with the same level of accuracy as the expert, who may have developed the heuristic through years of experience.
The third form of knowledge, explicit knowledge, can easily be conveyed from someone proficient at a task to someone else through written or verbal communications. The recipe for a cake, the steps involved in bolting a car door to the main chassis on an assembly line, and the list of ingredients required for a chemical process are all explicit knowledge. Unlike tacit and implicit knowledge, explicit knowledge often can be found in a book or operating manual.
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E X H I B I T 1 . 5
Intellectual Capital Components
Human
Attitude
Competencies
Education
Knowledge
Skills
Customer
Brand
Company name
Customers
Distribution channels
Franchise agreements
License agreements
Loyalty
Structural
Copyright
Corporate culture
Design rights
Financial relations
Information technology infrastructure
Management processes
Ser vice marks
Trade secrets
Trademarks
Since management in every organization manipulates human, structural, and customer capital, every organization uses Knowledge Management to some degree, though not necessarily in a sophisticated, formalized way. Not only does the relative percentage of the three types of intellectual capital vary from one company to the next, but the percent of human, customer, and structural capital varies from company to company, as well.
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E S S E N T I A L S o f K n o w l e d g e M a n a g e m e n t The following vignette illustrates the practical value of a formalized KM approach in increasing corporate competitiveness.
Tale of Two Companies
Two companies at opposite ends of the country, Healthcare Productions in San Francisco and Medical Multimedia in Boston, are involved in supporting the pharmaceutical industry. Both companies create promo-tional materials for conferences, educational programs for clinicians, and web sites for disseminating prescribing information about drugs to healthcare providers.
Medical Multimedia, in operation for about five years, has 35
employees and has been operating at a modest profit margin for the past three years. About half of the employees are involved in creating and manipulating images, sounds, videos, and other multimedia assets, while the remainder are concerned with programming, marketing, sales, and customer support.With two new contracts in the works, and the company already at capacity due to ongoing projects, Ron, the head of multimedia production, is operating in panic mode. Multimedia content has always been created for particular projects; when the project was delivered, the assets were stored in an ad hoc manner on various company servers, CDs, and hard drives. The content that was burned onto CD-ROMs has been stored in a fireproof safe in Ron’s office.
With the deadlines for the two new contracts looming, there is no time for anyone to excavate for the content previously developed—
some of which could be repurposed for the new contracts. Yet there is insufficient time to redraw the figures, synthesize the sounds, and render the video images from scratch. Faced with this reality, Ron approaches the president of the company and requests permission to hire a multimedia consultant immediately.
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The president agrees, and Mary, a multimedia consultant with over 20 years experience in the field, is brought on board the next week.
Mary suggests that Ron use a multimedia database program specially designed to keep track of graphics, sounds, and pictures, and their associated intellectual property status, so that components of Medical Multimedia’s holdings can be quickly and easily repurposed.
With the go-ahead from Ron, Mary lays the groundwork for the multimedia database program by interviewing everyone who eventually will directly or indirectly use the system, including:
• Artists. Graphic, video, and sound artists who need to reference prior work or continue work on active projects.
• Corporate Counsel. To verify intellectual property status of individual work. Some images and sounds held by Medical Multimedia are licensed from third parties for specific purposes or numbers of users, whereas others are created in house. A graphic originally licensed for a print publication may need to be relicensed for use on the web.
• Management. Ron and those involved in project management need to frequently assess the progress of graphic artists and verify that production schedules are on track.
• Programmers. The programming staff needs some way to assess the technical challenges associated with each media asset destined to be incorporated in electronic products. For example, some sounds and images may need to be converted into a form that is compatible with the web.
Not interviewed but considered in the design of the system are:
• Customers. Media typically needs to be exported periodically to customers for their sign-off before the sounds and graphics are incorporated into the brochures, books, or electronic products.
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• Potential Clients. Potential clients who are interested in the style and quality of artwork may pay the company a site visit prior to signing a contract for deliverables.
• Marketing and Sales. This group uses the media in presentations to customers and potential customers
In the interview process, Mary is concerned not only with the overall process of use but also with exactly how the assets will be cataloged and then retrieved. For example, she establishes a standard file-naming scheme that guarantees unique file names. In addition, she creates a database structure that incorporates the needs of artists, management, programmers, and corporate counsel that includes:
• Artist/Licensor. Name of the creator.
• Copyright Holder. The copyright holder of the multimedia.
• Creation Date. The date the media was created or acquired.
• Creation Tool/Version. Name and version of the software used to create the asset.
• File Name. The full name of the media file, as it appears on the computer.
• Index Terms. Standardized names used to classify the media, in this case using a vocabulary developed by the National Library of Medicine for its multimedia holdings.
• License Expiration Date. If licensed, the date of expiration.
• License Restrictions. For acquired multimedia, the restrictions imposed by the supplier.
• Physical Location.Where the actual multimedia resides in the company’s information system.
• Project. Name of the project the media is intended to support.
• Source File. For media rendered from models or other sources, the name of the source file.
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• Version. Version of the file. In the course of editing an image for production, a dozen or more versions may be created, for example.
During Mary’s work, she discovers that management has lost touch with its multimedia assets and its intellectual capital. Other than the person directly involved in managing or creating specific multimedia, no one knows the specific processes involved in creating products for market.
Management is so focused on company growth through capturing new contracts that existing processes are being ignored.
For example, one of the company’s core competencies, the ability to render realistic, three-dimensional (3-D) images of patients, is dependent on one artist who is fluent in a custom software package that is so specialized and complex that it takes months to master. Furthermore, unbeknownst to upper management, Ron has been unable to locate anyone to hire full time to assist the artist. The best that Ron can do is to identify a freelance consultant in Seattle and one in Oakland to handle some of the work. If the in-house artist were to leave, the entire production work of the company would come to a halt.
Since Medical Multimedia specializes in custom work, most of the internal processes parallel those of the artist, in that they are highly person-dependent and only the creator knows exactly how he performs his work. Realizing the potential for disaster, Mary approached the president of the company and suggested that she expand her multimedia asset management project to include the company’s intellectual capital. Given her success with the multimedia assets and her experience with similar companies, the president agreed to extend the asset management project.
He offers Mary a full-time position with Medical Multimedia, in charge of capturing, cataloging, and managing the company’s multimedia and intellectual assets.
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E S S E N T I A L S o f K n o w l e d g e M a n a g e m e n t With assistance from the president, Mary defines a KM program in which artists, programmers, marketing, and managers are required to document the process they use in their work, in working with others in the company, and in interacting with customers. Within a year of being hired, Mary has a working KM program in place and functioning.
When potential customers call Medical Multimedia for an estimate on cost and delivery time, sales and marketing are able to quickly and accurately predict the internal cost and time required to create the desired product. Additional multimedia that must be created or licensed, the current backlog of work in process, and the additional human resources needed to complete the project on time are all available to marketing and senior managers, thanks to the multimedia database and a library of decision support tools that Mary installed.
Understanding exactly how the 3-D graphic artist performs her TEAMFLY
work becomes of particular importance when she suddenly leaves to start her own company in the Midwest. Thanks to the process descriptions of her work, Ron is able to hire a replacement with the right mix of skills and bring him up to speed on the program in only three months.
Within two years, Medical Multimedia is a profitable, 75-person operation with a record of accomplishment of delivering quality product on time and to specification.
The San Francisco–based Healthcare Productions, which also employs 35 employees, takes a different tack regarding the management of its intellectual capital. Healthcare Productions hires a multimedia consultant to create a multimedia database to track multimedia assets.
However, the parallels between the two companies stop here.
The president of Healthcare Productions is resistant to extending the role of the consultant to include intellectual capital. Instead, after six months of work, the multimedia consultant moves on to another com-24
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pany. However, given the competition for artists and programmers in the volatile economy, employees are constantly leaving the company for greener pastures. Even with only three or four employees leaving the company every year, the lag time between finding, hiring, and training a new employee can be up to nine months. As a result, Healthcare Productions can’t grow by accepting new clients but is in a holding pattern, simply trying to keep up with the existing demand.
Key Concepts
The story, to be continued in later chapters, illustrates several key concepts regarding knowledge management.
• Leadership is essential. Someone in senior management has to own the KM effort. This manager is often termed the chief knowledge officer (CKO) if the task is all-encompassing, or the chief information officer (CIO) or other senior manager may take it on as an additional responsibility. Regardless of who takes the role, it involves achieving buy-in at all levels in the organization. In the story, Mary, who began as a media organization consultant, became the CIO by default, thanks to buy-in from senior management.
• Knowledge Management works. The potential benefits of Knowledge Management are numerous and can potentially benefit every type of business, especially those involved in the information technology and service industries.What can a senior manager expect from implementing KM in a corporation? As illustrated in the story of the two companies, under optimum conditions, KM promises reduced costs, improved service, increased efficiencies, and retention of intellectual assets.
• Knowledge Management requires training. Employee and manager education is fundamental to the proper operation of every phase of the KM process. As the story illustrates, employees 25
E S S E N T I A L S o f K n o w l e d g e M a n a g e m e n t and managers have to be trained to focus on the overall process even while they are attending to specific problems.
• Expectations must be managed. Implementing a KM program involves fundamental changes in how employees and managers interact, communicate, command, and get things done. Before reporting lines, responsibilities, and management directives shift to meet the KM demands of the corporation, employees and managers must be prepared for the change. However, since most people fear change, especially if it means disrupting a way of life that they’ve grown accustomed to, productivity can suffer unless employee expectations are managed proactively.
As Mary’s role in the story illustrates, an effective approach is to demonstrate the process on a clearly defined, obvious goal that is an easy win—such as cataloging digital image assets.
Only after this success was the consultant prepared to convince employees and management of the need to follow general KM practices.
• Practical Knowledge Management is technology dependent. Each of the steps in the KM process, as well as tracking knowledge assets, can be enhanced by information technologies. For example, the process of information creation is supported by the ubiquitous word processor running on a PC, and painless acquisition is made possible by the web and associated networking hardware. Similarly, storing and manipulating huge stores of data are made possible by database servers and software, and getting data in the hands of users benefits from handheld devices and wireless networks that provide anytime, anyplace access to information.
• Knowledge Management is a process, not a product. Knowledge Management is a dynamic, constantly evolving process, and not a shrink-wrapped product. Knowledge is an organizational process rather than a static collection of data that can be stored in a database. Typical KM practices in a modern corporation 26
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include acquiring knowledge from customers, creating new revenues from existing knowledge, capturing an employee’s knowledge for reuse later, and reviewing the predictors of a successful KM initiative.
T I P S & T E C H N I Q U E S
Assessing the Value of
Knowledge Management
Before embarking on a Knowledge Management initiative, senior management should have a good idea of its potential value to their organization. In other words, what’s wrong with the current model of conducting business? The key questions to ask are:
• How would a KM initiative change the day-to-day operation and management of the organization? For comparative purposes, the operations in companies that make use of KM
techniques are described in Chapter 2.
• How would employees react to the overhead of a KM system?
Chapter 3 provides a window into the lives of modern knowledge workers and how KM initiatives impact their productivity and relationship to the organization.
• How much could establishing a KM program improve the efficiency and effectiveness of the current business process? Chapter 4 discusses Knowledge Management as it relates to business processes.
• What technologies are available for Knowledge Management, and what are the benefits and limitations? The technological aspect of Knowledge Management is discussed in Chapter 5.
• What are the KM solutions offered by vendors, from consulting to hardware and software tools? Chapter 6 explores the major commercial options available.
(continues)
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E S S E N T I A L S o f K n o w l e d g e M a n a g e m e n t T I P S & T E C H N I Q U E S ( C O N T I N U E D )
• What is the likely return on investment (ROI) of implementing a viable KM program? The means of calculating ROI and the economics of Knowledge Management, from consulting fees to investment in new management structures to employee training, are discussed in Chapter 7.
• What is a reasonable approach to implementing Knowledge Management in the organization? Chapter 8 describes a practical implementation plan, including details on the likely challenges and roadblocks that readers may encounter along the way.
Readers who are convinced that Knowledge Management principles have the potential increase their company’s competitiveness in the marketplace are encouraged to explore the resources listed in the Further Reading section.
Reality Check
Although Knowledge Management has a lot to offer, like any other business optimization process, it is by no means a panacea. The major challenges in the KM field are outlined here and discussed in detail in Chapter 8.
Knowledge Management Principles Apply in
Varying Degrees
Every successful business operation, from the corner deli to the top Fortune 500 companies, uses Knowledge Management to some degree, even if only in an unsophisticated, ad hoc way. However, the work that some companies engage in is so dependent on individual talent, such as musical or graphical artistry, that the only practical way to capture the relevant knowledge is through a lengthy personal apprenticeship.
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Other work can be defined to the point that virtually anyone with a modicum of training can fill a vacancy anywhere in the company. For example, since McDonald’s hires workers with a wide range of abilities and experiences, its training program leaves virtually no room for vari-ation in process. Even seemingly insignificant tasks, such as the method in which are fries salted (from the back to the front of the deep fryer rack), are fully defined, leaving little room for misinterpretation of the intended process.
Some work, such as high-end special sound or graphics effects for a movie, is unique to the point that it can be considered magic—it’s a special, mysterious, or inexplicable quality, talent, or skill. Tasks involving tacit and, to a lesser degree, implicit knowledge are often considered magic. Salting french fries, in contrast, is a technology based on manufacturing techniques, process optimization, and use of explicit knowledge.
Most tasks fit somewhere in the continuum between magic and technology and within the boundaries set by the characteristics of pure technology and pure magic, as shown in Exhibit 1.6. For example, the tasks associated with salting french fries at McDonald’s (represented by the containers of french fries) can all be considered at the extreme technology end of the spectrum. There is a specific process defied for the tasks, and anyone following the process will turn out an acceptable product. At McDonald’s, training typically includes having employees watch short training videos—a form of explicit knowledge—distributed by the corporate offices.
In contrast, the ability of a musician to create a one-of-a-kind multimedia experience is considered more toward the magic end of the spectrum, represented in Exhibit 1.6 by the musical notes. The art of making music typically is associated with years of training, and the results may not be replicable by other artists or even by the same artist at a later time.
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E S S E N T I A L S o f K n o w l e d g e M a n a g e m e n t E X H I B I T 1 . 6
CHARACTERISTIC
MAGIC
TECHNOLOGY
Ancillary Uses
Few
Many
Compatibility
Low
High
Complexity
High
Low
Configuration Time
High
Low
Cost
Variable/High
Fixed/Low
Deliverable
Prototype
Commodity
Economies of Scale
Low
High
Expectation
Variable
Known
Goal
Capability
Profitably
Installed Base
Small
Large
Marginal Cost
High
Low
Mechanism of Action
Unknown
Known
Perception
Emotive
Logical
Paradigm
Art
Science
Price
High
Low
Repeatability
Low
High
Resource Requirements
High/Variable
Low/Fixed
ROI
Unknown/Variable
Known/Fixed
Scalability
Low
High
Training Requirements
High
Moderate/Low
Usability
Single Event
Continuous
Knowledge Management Isn’t Perfect—Yet
In most organizations, Knowledge Management is a work-in-progress, with some subtle and some obvious imperfections. For example, the transfer of data, information, and knowledge from person to person, person to computer system, or one generation of employees to the next is an imperfect process that rarely occurs smoothly and always involves loss of information. Loss of information happens when recording standards shift, when a longer-lasting storage medium requires transfer of information, when data must be migrated between storage locations or translated from one form of representation to another, and when the computer hardware used to interpret the data becomes obsolete.
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Significant Legal Issues Exist
Knowledge Management deals with the ownership and manipulation of intellectual property, from copyrighted materials, trademarks, patents, and patent applications to trade secrets. A patent portfolio can add significant value to a company. However, in many instances, intellectual property instruments are useful primarily in defending a court case.
What’s more, the time lag between applying for patent protection and receiving a patent may be years. Given the time pressure to bring products and services to market, the time and expense of patenting a process or device may make it more feasible for the company simply to keep the information as a trade secret.
However, relying on trade secrets is associated with a risk of employees leaving with proprietary knowledge, even with nondisclosure and noncompete agreements in place. Trade secrets also don’t contribute to the valuation of the company to the degree that patents do, since a competing company may file a patent application, potentially barring the company from using its trade secrets. Some companies are attempting to avoid the intellectual property courts altogether by publishing their findings early to prevent the competition from patenting the product or service. This KM approach is especially attractive in the software industry, where virtually any program can be reverse-engineered and replicated in a matter of weeks to months.
Extensive Training and Retraining
May Be Required
A significant investment in employee and management training may be required if a KM program is to succeed. Knowledge Management works best when employees and management willingly and regularly contribute to the pool of corporat