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Knowledge
Knowledge value chain value chain

Ching Chyi Lee and Jie Yang

The Chínese University ofHong Kong, Hong Kong
783
Keywords Knowledge management, Tacit knowledge, Explicit knowledge,
Knowledge-based valúe systems, Competitive advantage
Abstract Introduces the knowledge valúe chain model as a knowledge management (KM) framework
The model consists of knowledge infrastructure (knowledge worker recruitment, knowledge storage
capacity, customer/supplier relationship and CKO and management), the process of KM (knowledge
acquisition, knowledge innovation, knowledge protection, knowledge integration, and knowledge
dissemination), and the interaction among those components resulting in knowledge performance.
Further to the discussion of knowledge value chain (KVC), the following viewpoint was proposed: KM
guides the way a corporation performs individual knowledge activities and organizes its entire KVC.
It was suggested that competitive advantage grows out of the way corporations organize and perform
discrete activities in knowledge value chain which should be measured by the core competence of
corporation. This article also provides a cross-reference for e-commerce researchers and
practitioners.

Knowledge and knowledge management

Knowledge vs information
Knowledge refers to an observer’s distinction of “objects” through which he brings
forth from the background of experience a coherent and self-consistent set of
coordinated actions (Zeleny, 1987). Through the process of distinction, individual
pieces of data and information become connected with one another in a network of
relations. Knowledge then is contained in the overall organizational pattern of the
network and not in any of the components.
Knowledge is more than information. Information is data organized into
meaningful patterns. Information is transformed into knowledge when a person reads,
understands, interprets, and applies the information to a specific work function.
Knowledge becomes visible when experienced persons put into practice lessons
learned over time.
One person’s knowledge can be another person’s information. If a person cannot
understand and apply the information to anything, it remains just information.
However, another individual can take that same information, understand it and
interpret it in the context of previous experience, and apply the newly acquired
knowledge to make business decisions or redefine a laboratory procedure. Yet a third
person may take the same pieces of information, and through his unique personal
experiences or lessons learned, apply knowledge in ways that the second person may
never have even considered. Information is a component part but not the whole of
knowledge (Machlup, 1982). Knowledge itself is a much more all-encompassing term
that incorporates the concept of beliefs based on information (Dretske, 1981). It also
depends on the commitment and understanding of the individual holding these beliefs,
which are affected by people’s interaction and the development of judgement, behavior
and attitude (Berger and Luckmann, 1967). © MCB univeUy PreíWmi
Journal of Tacit vs explicit
Management Tacit knowledge is that knowledge which cannot be explicated fully even by an
Development expert and can be transferred from one person to another only through a long process
19,9 of apprenticeship (Polany, 1962). Polany’s famous dictum, “We know more than we
can tell”, points to the phenomenon in which much that constitutes human skill
remains unarticulated and known only to the person who has that skill. Tacit
784 knowledge is the skills and “know-how” we have inside each of us that cannot be
easily shared (Lim, 1999).
In fact, both of the definitions have the same meaning. In contrast, explicit
knowledge is relatively easily to articulate and communicate and, thus, transfer
between individuals and organizations. Explicit knowledge resides in formulae,
textbooks, or technical documents. Analogous to the tacit and explicit dichotomy,
Zuboff (1989) makes a distinction between embodied or action-centered, skills and
intellective skills. Action-centered skills are developed through actual performance
(learning by doing). In contrast, intellective skills combine abstraction, explicit
reference, and procedural reasoning, which makes them easily representable as
symbols and, therefore, easily transferable.
The conceptual distinction between tacit and explicit knowledge also appears in
Reed et al. ’s (1996) discussion of causally ambiguous competencies. They describe
tactics as residing in the inability of even a skilled individual to spell out explicitly
the decision rules and protocols that form the basis of performance. Badaracco (1991)
conceives of tacit knowledge as existing in individuals or groups of individuals. He
refers to such knowledge in individuals and social groups as embedded knowledge.
Similar distinctions between explicit and largely tacit knowledge in organizations
have been made by Scribner (1986), Nonaka (1988), Hedlund (1994), and Bohn
(1994). Explicit knowledge is the knowledge that can be easily captured artificially
through manuals and standard operations, and then shared with others either through
thought courses or through books for self- reading. In an organization, tangible
knowledge takes the form of job procedures as well as the company’s philosophy and
strategy.

Knowledge Management
Information is becoming ever more important in our economy, and most corporations
see that knowledge can confer competitive advantage. But corporations are already
flooded with information, and most of us have more of it than we can handle.
Knowledge management (KM) tries to resolve the troublesome paradox (Anthes,
1998).
A common definition of KM is: “The collection of processes that govern the
creation, dissemination and leveraging of knowledge to fulfil organizational
objectives’’. KM is an emerging set of organizational design and operational
principles, processes, organizational structures, applications and technologies that
helps knowledge workers dramatically leverage their creativity and ability to deliver
business value. In fact, KM is about people and the processes they
use to share information and build knowledge (Hanley, 1999). Marshall (1997)
considered that KM refers to the harnessing of “intellectual capital’’ within an
organization. KM theory discusses accessing and using all information within an
institution, enabling individuals to apply pertinent information to what they already
know, in order to create knowledge. The theory recognizes that knowledge, not simply
information, is the greatest asset to an institution. It includes the strategies and
processes for identifying, capturing, sharing, and 785
Knowledge
leveraging the knowledge required to survive and compete successfully into the valué chain
twenty-first century (Gautschi, 1999). KM focuses on “doing the right thing” instead
of “doing things right”. In our thinking, KM is a framework within which the
organization views all its processes as knowledge processes.

Knowledge valué chain model

Differences among competitor value chains are a key source of competitive
advantage. In competitive terms, value is the amount customers are willing to pay for
what a corporation provides them. Value is measured by total revenue, a reflection of
the price a corporation’s product commands and the units it can sell. A firm is
profitable if the value it commands exceeds the costs involved in creating the product
(Porter, 1985). Creating value for customers that exceeds the cost of doing so is the
goal of any competitive strategy. Value, instead of cost, must be used in analyzing
competitive position since corporations often deliberately raise their cost in order to
command a premium price via differentiation. Employing Porter’s value chain
analysis approach, we developed a knowledge value chain model.
Knowledge value chain consists of KM infrastructure and the KM process’s
activities and knowledge performance. These infrastructure components and activities
are the building blocks by which a corporation creates a product or provides service
valuable to its customers. Knowledge performance can be measured in two categories
(van Buren, 1999). One is financial performance.
However, financial assessments such as ROI are particularly difficult to make for KM
activities. The other is non-financial measures including operating performance
outcomes and direct measures of learning. Examples of operating performance
measures include lead times, customer satisfaction, and employee productivity.
Learning measures include such items as the number of participants in communities of
practice, employees trained, and customers affected by the use of knowledge.
All the non-financial measures can be regarded as the reflection of core
competence of corporation. The KM process’s activities are listed along the bottomof
Figure 1.
In any corporation, the KM process can be divided into the five categories shown
in Figure 1. KM infrastructure supports the KM process activities. The dotted lines
reflect the fact that customer/supplier relationship, knowledge storage capacity, and
knowledge worker recruitment can be associated with
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specific KM process activities as well as support the entire chain. CKO and
management are not associated with particular KM process activities but support the
entire chain.

Components of KM infrastructure
Knowledge worker recruitment
The term knowledge worker refers to the worker who possesses competencies,
knowledge, and skills in the organization such as computer engineers, accountants, etc.
If a person leaves the organization, their knowledge goes with them. Knowledge is
acquirable and renewable. It is the source of innovation and creativity. This is the
traditional focus of many training and education programs. In the knowledge economy,
knowledge permeates through everything important - people, products organizations.
There have always been people who worked with their minds rather than their
hands. In knowledge era, these are the majority of the workforce. Already, almost 60
per cent of American workers are knowledge workers. Recruiting knowledge workers
in organizations is a key activity in the long term.

Knowledge storage capacity

Knowledge storage capacity is organizational memory and capabilities for people to
store and reuse information and knowledge. It involves the organization’s routine
operations and structures that support employees’ quests for optimum intellectual
performance and, therefore, overall business performance. An individual can have a
high level of knowledge, but if the organization has poor systems and procedures by
which to track his or her actions, the overall knowledge resource will not reach its
fullest potential. Knowledge storage capacity is owned by the organization. It is
retained by the organization when employees leave.
There exist two organizational structures, formal and informal. In formal
organizations, people easily access explicit knowledge. Informal organizations
 Knowledge
value chain
are rich in tacit knowledge, which usually is the source of innovation. It is difficult to
articúlate in writing and is acquired through personal experience. It is shared by
intensive face-to-face communication. To keep the costs of knowledge transfer low,
managers try to turn inherently tacit knowledge into explicit knowledge. There are
different approaches to implement KM, it depends on what kind of knowledge your
people rely on to solve problem. When employees rely on explicit knowledge to do 787
their work, the people-to- documents approach makes the most sense. When people
use tacit knowledge most often to solve problems, the person-to-person approach
works best.

Customer/supplier relationship
Customer/supplier relationship refers to the organization’s relationships with its
customers/suppliers. It might include customer/supplier loyalty for services or
products, the purchasing/sale patterns of different customer/supplier groups,
customer/supplier service reputation, warranties and undertakings by
customer/supplier, and database for customer/supplier.
The relationship between a corporation and its suppliers is very important and can
be regarded as a intangible and agile asset of the corporation. It enables corporation to
meet the needs of customers at a lower cost. Owning more stable and closer
relationship with suppliers than its competitors means that the corporation has gained a
superior competitive position over its competitors. In other words, the supplier
relationship is mainly for cost control purposes.
Understanding better than anyone else what customers want in a product or a
service is what makes someone a business leader as opposed to a follower. Turning
knowledge into new customized products and services will maximize a corporation’s
market value.

CKO and management

As a corporation undertakes a KM program, the position of chief knowledge officer
(CKO) is emerging to coordinate the KM infrastructure components and KM activities.
The CKO is entrusted with the role of transforming intellectual property into a
business value. In other words, The CKO is responsible for the overall knowledge
assets of a company and for defining the area in which the knowledge capabilities of
the organization should evolve, based on its ongoing mission and vision. The CKO has
the ultimate corporation-wide responsibility for the controlled vocabulary and
knowledge directory and tackles the difficult issues associated with cross-department
or cross-corporation processes that have unique knowledge-sharing requirements.
The CKO also is responsible for ensuring that an appropriate technology
infrastructure is in place for effective KM. The CKO has two principle design
competencies: He is a technologist or environmentalist. Breadth of career experience,
familiarity with his organization, and infectious enthusiasm for his mission are
characteristic of the CKO.
Journal of In this research, both the CKO and management can be considered as support not
Management only for the other three infrastructure components, but also for the entire process of
Development KM.
19,9
Process of knowledge management
As noted in Figure 1, the process of KM consists of five activities - knowledge
788
acquisition, integration, innovation, protection, and dissemination.

Knowledge acquisition
In order to do something we need to track down and analyze all the information and
explicit knowledge that is available. This will lead to beginning the process of
knowledge acquisition via knowledge management infrastructure.
We will discuss two processes through which organizations acquire information or
knowledge: searching and organizational learning.
Organizational information acquisition through searching can be viewed as
occurring in three forms (Huber, 1991):
(1) scanning;
(2) focused search; and
(3) performance monitoring.
Scanning refers to the relatively wide-ranging sensing of the organization’s external
environment. Focused searching occurs when organizational members or units actively
search in a narrow segment of the organization’s internal or external environment,
often in response to actual or suspected problems or opportunities. Performance
monitoring is used to mean both focused and wide- ranging sensing of the
organization’s effectiveness in fulfilling its own pre- established goals or the
requirements of stakeholders. Noticing is the unintended acquisition of information
about the organization’s external environment, internal conditions, or performance.
Organizational learning plays a vital role in knowledge acquisition. The need for
organizations to change continuously, which was emphasized by Drucker, has long
been the central concern of organizational learning theorists. Just as with individuals,
organizations must always confront novel aspects of their circumstances (Cohen,
1991).
It is widely agreed that learning consists of two kinds of activity. The first kind of
learning is obtaining know-how in order to solve specific problems based upon
existing premises. The second kind of learning is establishing new premises
(paradigms, schemata, mental models, or perspectives) to override the existing ones.
These two kinds of learning have been referred to as “Learning I’’ and “Learning
II’’ (Bateson, 1972) or “single-loop learning’’ and “double-loop learning’’ (Argyris
and Schon, 1978). From our viewpoint, knowledge acquisition and knowledge
innovation certainly involve interaction between these two kinds of learning, which
forms a kind of dynamic spiral. Senge (1990)
 Knowledge
value chain
recognized that many organizations suffer from “learning disabilities”. To cure the
diseases and enhance the organization’s capacity to learn, he proposed the “learning
organization” as a practical model. He argued that the learning organization has the
capacity for both generative learning (i.e. active) and adaptive learning (i.e. passive) as
the sustainable sources of competitive advantage. 789
Knowledge innovation
In a strict sense, knowledge is created only by individuals. An organization cannot
create knowledge without individuals. The organization supports creative individuals
or provides contexts for them to create knowledge. Organizational knowledge
innovation, therefore, should be understood as a process that “organizationally”
amplifies the knowledge created by individuals and crystallizes it as a part of the
knowledge network of the organization. There are actually three levels of knowledge-
creating entities including individual, group, and organization. On the other hand, the
conversion of tacit knowledge to explicit knowledge is a key process in creating new
knowledge. A knowledge-innovation spiral emerges when the interaction between tacit
and explicit knowledge is elevated dynamically from a lower level knowledge-
creating entity to higher levels.
The assumption that knowledge is created through the interaction between tacit and
explicit knowledge leads to four different modes of knowledge conversion. The four
modes actually are four realizations:
(1) from tacit knowledge to tacit knowledge, which is called socialization;
(2) from tacit knowledge to explicit knowledge, or externalization;
(3) from explicit knowledge to explicit knowledge, or combination; and
(4) from explicit knowledge to tacit knowledge, or internalization.

Knowledge protection
Protection of knowledge is important because it protects creativity and the interests of
knowledge-owners. In legal systems protection of knowledge means protection of
Intellectual Property Rights (IPR) such as copyrights and patents, which includes
provision for a right of legal action against infringers of IPR and provisions detailing
persons or corporations empowered to authorize the commercial use of IPR and
allowing the owner of IPR to charge fees for such commercial uses. In a sophisticated
information technology (IT) system, knowledge will be protected by filename, by
username, by password, etc., so that knowledge can be reused when it receives a
request and checks against the standard file-sharing users and group table to determine
what rights the user has.
In addition to legal and IT protection, corporations should contract with employees
regarding confidential information and their tenure in case of they
Journal of leave, and should also develop other protocols and policy guidelines which
Management recognize and promote rights of knowledge, and then implement them by staff
Development awareness and education campaigns.
19,9
Knowledge integration
Latest advances of information technology can facilitate the processes such as
790
acquiring and disseminating knowledge; however, the final burden is on people
deciding how to translate this raw knowledge into actionable knowledge by means of
an acute understanding of their business context. This is a internal knowledge
integration process. Corporations have always had some process to synthesize their
experience and integrate it with knowledge acquired from outside sources (e.g.
inventions, purchased patents). A corporation acquires knowledge from years of
experience in such things as manufacturing, sales, and service. This cumulative
experience from different departments, together with information gathered from
outside sources, can be integrated into the KVC of the organization, which is a inter-
sub-KVC integration process, eventually being the base of KM infrastructure.

Knowledge dissemination
The most effective way to disseminate knowledge and best practice is through
systematic transfer. That is, to create a knowledge-sharing environment.
It is no coincidence that IT has blossomed at the same time that knowledge is
becoming recognized as the most valuable of a corporation’s assets. Explicit
knowledge can be shared through an IT system. However, tacit knowledge is best
shared through people. The more “valuable” the knowledge, the less sophisticated the
technology that supports it. Dissemination of tacit knowledge is a social process.
People must contribute knowledge to become part of a knowledge network. IT alone
will not remove significant KM barriers. IT will not change people’s behaviors,
increase management’s commitment, nor create a shared understanding of its strategy
or its implementation.
To show its commitment for sharing knowledge, an organization should foster the
employee’s willingness to share and contribute to the knowledge base. This may be the
most difficult obstacle to overcome. Current performance and rewards systems
exemplify an individual’s personal achievement and rarely take into account an
individual’s contribution to or participation in formal collaboration efforts. Reward
structures and performance metrics need to be created which benefit those individuals
who contribute to and use a shared knowledge base. Those who excel at knowledge
sharing should be recognized in public forums such as newsletters and e-mails. By
effective communication, the knowledge disseminated flows to the acquirers who are
searching for and learning knowledge or information they need. Employees must be
made to understand that the success and advancement in their career will be based on
KM principles. KM skills must be seen to be as important to career advancement as
continuing education and communication skills.
KVC, business valué chain, and competitive strategy Knowledge
As the valúe chain itself implies, each element of activity can create valúe and valúe chain
then all the valúe flows to the endpoint of the business valúe chain and joins together,
forming the overall valúe of búsiness, which is úsúally expressed as a margin (see
Figúre 2).
Probing deeply, we can find that the added valúe comes from the
competence of element activity itself, which in túrn comes from specific súb- _____________________
KVC of itself. For example, súb-KVC in inboúnd logistics (IL) activity enables
Figure 2.
búsiness to gain the inboúnd logistics competence, and then the added valúe follows. Relationship between
The same process occúrs in other activities inclúding operations (OP), oútboúnd búsiness valúe chain
logistics (OL), marketing and sales (MS), and service (SE). Finally, all and KVC

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Journal of the sub-KVCs are integrated together into the whole KVC. In the process of
Management knowledge integration, the competence of knowledge infrastructure is gradually
Development forming. In the end, corporation competence follows KVC.
19,9 By analyzing the above, we might note that competence is after all the
measurement of each sub-KVC. That is the reason why we feel that the core
792 competence of the corporation should be employed as the key non-financial measure
of knowledge performance.
In the whole process of KM, the innovation activity fits the product differentiation
strategy, which can enable corporation gains the competitive advantage, as mentioned
before (see Figure 3), while reusing knowledge fits low cost strategy, by which
competitive advantage gained again. In consulting corporations, it’s just like building
with bricks: consultants reuse existing bricks while applying their skills to construct
something new. The reuse of knowledge saves work, reduces communication costs,
and allows a company to take on more projects. A case study of KM by Hansen et al.
(1999) noted that, as a consequence, corporations such as Andersen Consulting and
Ernst & Young have been able to grow at rates of 20 per cent or more in recent years.
Ernst & Young’s worldwide consulting revenues, for example, increased from $1.5
billion in 1995 to $2.7 billion in 1997. Generally, managing knowledge assets should,
like patents, trademarks and licenses, even add knowledge to the balance sheet.

Conclusión and further discussion

Knowledge is information plus causal links that help to make sense of this
information. KM is a process that transforms information into knowledge.
KM guides the way a corporation performs individual knowledge activities and
organizes its entire knowledge value chain. It is suggested that competitive advantage
grows out of the way corporations organize and perform discrete activities in the
knowledge value chain, which should be measured by the core competence of the
corporation.
In the end, we would raise another assumption for further discussion, so that for
KM to “open the black box” of a corporation and examine its intricate details. We
assumed that the corporation should be treated more or less as a box of tricks
producing the predictable outputs of knowledge-based products and services from
specific inputs of information or/and knowledge.

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 Knowledge
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