Table of Contents

Table of Contents ..........................................................................................................1

List of Table..................................................................................................................2
List of Figure.................................................................................................................2
Introduction...................................................................................................................3
What is Knowledge? .....................................................................................................3
Relationship among Data, Information, and Knowledge............................................4
The Key Components of Knowledge.........................................................................5
Knowledge and Its Attributes ........................................................................................6
The Knowledge Organization ........................................................................................7
Knowledge as strategic asset .........................................................................................8
Why Knowledge Management?.....................................................................................9
Knowledge Management in Action..............................................................................11
Implementation KM in Ford Motor Company .........................................................13
Summary.....................................................................................................................14
References...................................................................................................................15

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 List of Table

Table 1. Relationship of Data to Higher levels of Summarisations .................................. 5

Table 2. Representative Knowledge Attributes ............................................................... 6

List of Figure

Figure 1. Summarises the sustainable competitive advantage........................................ 10

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 Knowledge: A Key Organization Resource

Introduction

The idea of Knowledge Management (hereafter KM) has created considerable curiosity.
KM has become trend in the new global economy. According to Prusak (2000, cited in
Spender 2003), an 85% of the global 1000 companies are now doing knowledge project.
Most organisations realise that awareness of knowledge is an important economic asset,
because intangible assets are now the source of the firm’s competitive advantage
(Stewart 1998).

All organisations use knowledge in many ways at every level organisation. Based on
this perception, KM is not new. However, use of modern technology to create, capture,
and utilise knowledge, as an intellectual asset to a company’s advantage is new.
Successful managers have always recognised and used intellectual assets as their value
(Turban & Aronson 2001). Therefore, organisations are doing IT investments to
generate huge volumes of information to generate knowledge.

In the field of investment in organisation, there are many sources of power, such as the
availability of investment capital and people’s capability. Another important source of
power is knowledge. Therefore, knowledge becomes a key source to sustainable
competitive advantage in an organisation in a global context.

This paper begins with a discussion on the definition of knowledge, covering the
relationship among data, information, and knowledge; and the key component of
knowledge. Next, the attributes of knowledge are provided, followed by knowledge
organisation that has become the trend to survive and gain competitiveness in the global
economy. In the next section, knowledge as strategic asset is presented. After that, the
importance of KM is discussed. Finally, knowledge in action presents implementation
of KM in a huge Company.

What is Knowledge?

Knowledge is the result of human evolution, the intelligent brain. Knowledge is a

particularly human characteristic in that knowledge is unable to be separated from the
human being (Ward & Peppard 2002). Therefore, knowledge is dependent. It only exists
in humans. On the other hand, data and information can exist independently.

According to Nonaka and Konno (1998), knowledge is created in knowledge platform

emerged in individuals, working groups, project teams, informal circles, temporary
meetings, e-mail groups, and at the front line contact with the customer.

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Before knowledge can be developed and tied together as a competitive tool and an
important business resource, it must be extracted from the great assimilation of daily
activity and data and turned into useful information. Information should be related to
the business needs and then distributed to appropriate executives and manager who will
act on it. In turn, translating information into knowledge means more than summarising
information on a periodic basis – daily, weekly, or monthly. Knowledge centres not
only on identifying important changes that are related to important opportunities, but
also on helping top managers identify important problems that need to be addressed
immediately for solution (Thierauf 1999). The following section presents a discussion
the relationship among data, information, and knowledge, followed by the key
components of knowledge.

Relationship among Data, Information, and Knowledge

Data, information, and knowledge are often used interchangeably within KM.
According to Davenport (1998 cited in Holsapple 2003), data is turned into information
and information is turned into knowledge.

To illustrate the relationship among data, information, and knowledge, reference can be
made to table 1, which shows important factors about each of these levels.

According to Thierauf (1999), data represents the unstructured facts and figures, which
have the least impact for the typical manager. Bennet & Bennet (2003) define that data
are discrete, objective facts about events, including numbers, letters, and images without
context. Therefore, data is the information processing at the lowest level.

At this next level, information is structured data that is useful to the manager in
analysing and resolving critical problems. Information is data with some level of
meaning. It is usually presented to describe a situation and condition (Bennet & Bennet
2003). Hence, information has added value over data.

The next level is knowledge that is formed from data and information and created
within the individual. Knowledge represents understanding of the context, insight into
the relationship within a system, and the ability to identify leverage points and
weaknesses and to understand future implications of actions taken to resolve problems
(Bennet & Bennet 2003). Knowledge is richer and more meaningful awareness and
understanding that resonates with how the people view the world. Therefore, knowledge
is frequently considered actionable.

Basically, information can become knowledge in the hands of an expert. A body of

information organised into a coherent framework forms the basis for the creation of
knowledge (Thierauf 1999). For example, knowledge about a company’s financial
position is impossible without a framework to organise ratio derived from accounting
data and information in the balance sheet, income statement, and cash-flow statement.
Knowledge comes from insight and understanding of the underlying structure of
financial information. It requires expertise to interpret financial results in a creative
way.

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Table 1. Relationship of Data to Higher levels of Summarisations
Level of Problem Decision Nature of
Summarisation Definition Importance Approach Problem
Truth Conformance to Critical Consensus Structured to
fact or reality unstructured
Wisdom Ability to judge Critical Consensus Unstructured
soundly
Knowledge Obtained from Major Advisory Group Semistructured
experts based on
actual
experience
Information Structured data Major to minor Advisors Structured and
useful for Semistructured
analysis
Data Unstructured Minor to trivial Individual Structured
facts
(Source: Thierauf 1999, p. 6)

The next level is wisdom, which the ability to judge soundly. Wisdom requires the
intuitive ability, born experience, to look beyond the apparent situation, recognise
exceptional factors and anticipate unusual outcomes (Thierauf 1999). Further, wisdom
is a vital organisational resource, accumulated through experience and thinking. As
such, wisdom can be used as an organisational strategy to develop human potential in
organisation (Thierauf 1999). In this case, a wise manager knows what knowledge or
know-how is needed in a given situation and knows how to renew that knowledge by
working with others to solve a problem or achieve a goal.
The highest level is truth. It is conformance to fact or reality and represents the top of
understanding. Although its place in the typical organisation is being debate at this time,
it is safe to say that certain truths centering on ethical and environmental issues are
always useful to the typical manager and help guide a company at all times. Going
beyond the truth found in the business community, one enters the area of truth found in
the religious community. Truth is equivalent to God (Thierauf 1999).

The Key Components of Knowledge

Knowledge is developed over time with experience, which makes connections among
new situations and events in context. Therefore, employees must recognize the
characteristics of the knowledge in order to be more effective to persuade it in their
organisation. Davenport & Prusak (1998) revealed that knowledge could be
characterised by:
 Ground truth. This is the truth gained from experience, not theory. This is what
works in practice.
 Complexity. Complex situation indicate complex approaches to solving them.
Sometimes a lack of knowledge makes a problem complex.
 Judgment. Puts knowledge into an actionable context. Knowledge evolves and
may no longer apply to the situation that it originally did.

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  Heuristics (rule of thumb) and intuition. Guides to action, shortcuts, and
simplifications for problem solving.
 Values and beliefs. Different people have different problem-solving frames.

Further, the following section discusses more widely about knowledge attributes that
may be useful for knowledge workers to consider in dealing with knowledge portfolio
(Holsapple 2003).

Knowledge and Its Attributes

Knowledge is key assets to modern organisations, a focal point for knowledge-based

organisations, and a resource that may lead to competitive advantage. Therefore, it is
important to recognise various attributes of knowledge. An attribute is dimension along
which different instances of knowledge can vary (Holsapple 2003). Table 2
demonstrates knowledge’s attributes.

Table 2. Representative Knowledge Attributes

Attribute Nature of Dimension References

Mode Tacit vs. explicit knowledge Teece, 1981; Nonaka,
1991; Nonaka and
Takeuchi, 1995
Type Descriptive vs. procedural vs. reasoning Bonczek et al., 1981;
knowledge Holsapple & Whinston,
1987; Holsapple, 1995;
Holsapple & Whinston,
1996.
Domain Subject area or problem domain where Van Der Spek &
knowledge is used (e.g. marketing, Spijkervet, 1997
engineering, policy, manufacturing)
Orientation Domain vs. relational vs. self knowledge Dos Santos &
Holsapple, 1989;
Holsapple & Whinston,
1996.
Applicability Range from local to global Novins & Amstrong,
1997
Management level Operational vs. control vs. strategic Anthony, 1995
Usage Practical vs. intellectual vs. recreational Machlup, 1982
vs. spiritual vs. unwanted
Accessibility Range from public to private Holsapple & Whinston,
1996.
Utility Progression of levels from a clear Holsapple & Whinston,
representation to one that is meaningful to 1996.
one that is relevant to one that is important
Validity Degree of accuracy or certainty about Holsapple & Whinston,
knowledge 1996.

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 Attribute Nature of Dimension References
Proficiency Degree expertise embodied in knowledge Wiig, 1993
Source Origin of knowledge Novins & Amstrong,
1997
Immediacy Latent vs. currently actionable Stewart, 2002
Age Range from new to established to old Van Der Spek &
knowledge Spijkervet, 1997
Perishability Shelf-life of knowledge Holsapple & Whinston,
1987.
Volatility Degree to which knowledge is subject to Pritchard, 1999
change
Location Position of knowledge (e.g. ontological, Van Der Spek &
organisational, geographic locus) Spijkervet, 1997
Abstraction Range from concrete to abstract Boland et al.2001
Conceptual level Automatic vs. pragmatic vs. systematic vs. Wiig, 1993
idealistic
Resolution Range from superficial to deep Wiig, 1993
Programmability Degree to which knowledge is transferable Novins & Amstrong,
and easy to use 1997
Measurability Degree to which knowledge or its Holsapple & Whinston,
processing can be measured 1987; Edvinsson &
Malone, 1997; Lev,
2001
Recursion Knowledge vs. meta-knowledge vs. meta- Bonczek et al., 1981
meta- knowledge

(Source: Holsapple 2003, p. 178-179)

The Knowledge Organization

Technology has played the strongest role in creating the present environment which
organisation should adopt and learn how to excel compared to their competitors. This is
because technology plays a dominant role in determining both the landscape of
competition and the cultural and educational needs of the workplace (Bennet & Bennet
2003). Especially, the phenomenal rise of the Internet, coupled with the spin-offs of
intranets and extranets, such as World Wide Web, Portals, etc., have created a
networking potential that drives all of society and corporations in term of speed,
interdependencies, and global markets throughout the world. Therefore, these complex
and dynamic environments encourage organisations to survive and grow well, because
time accelerates, distance shrinks, network expands, and uncertainty dominates. Thus,
they ought to build competitive advantage in order to improve their competitive status.

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That situation has changed fundamental organisation from bureaucracy organisation to
knowledge organisation. The former is focused on organisational stability and the
accuracy and repetitiveness of internal processes. The latter is focused on flexibility and
customer response (Bennet & Bennet 2003). The move to a knowledge management is
occurring and will continue. A significant challenge continuously facing the modern
knowledge organisation is how to harness the benefits of Information Technology. As
results, information, knowledge, and intelligent application will be essential factor in
future success.

Bennett & Bennet (2003) present three characteristics of knowledge organisation as

illustrated below:
 Dynamic networks are the main infrastructure of the new knowledge-based
organisation. Dynamic networks offer the opportunity for virtual information
and knowledge support system that will connect data, information, knowledge,
and people through virtual communities, knowledge repositories, and knowledge
protal.
 Learning and knowledge are emergent characteristics of the future world-class
organisation. Learning will be continuous and widespread, utilising mentoring,
classroom, and distance learning and will likely be self-managed with strong
infrastructure support. The creation, storage, transfer, and application of
knowledge will have been refined and developed such that it becomes a major
resource of the organisation as it satisfies customers and adapts to environmental
competitive forces and opportunities.
 Organisational intelligence. Intelligent behaviour is to be well prepared, provide
excellent outcome oriented thinking, choose appropriate postures, and make
outstanding decision.

In sum, where in bureaucracy organisation, policy, rules, and power, are dominant, in
knowledge-based organisation of the future, learning, knowledge, networking, and
relationship will be dominant. Moreover, the new global business has stimulated the
organisation change from bureaucracy to knowledge organisation in order to gain
competitive global.

Knowledge as strategic asset

According to Peter Drucker (1998 cited in Ahn & Chang 2003, p.1) “knowledge has
become the key economic resource and the dominant – and perhaps even the only –
source of comparative advantage”. In generic term, knowledge is the internal state of
agent that has acquired and processed information from previous experience. An agent
can be human being, storing, and processing information in his/her mind, or an abstract
machine including devices store and process information (Mo & Zhou 2003). Therefore,
knowledge assets are often inherently difficult to copy. Moreover, like physical assets,
some knowledge assets are protected against theft under intellectual property laws
(Teece 1998). Thus, knowledge assets can be categorised as intellectual assets whereas
intellectual assets are intangible assets.

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Teece (2000 cited in Spender 2003) argued that the increased power and reduced cost of
information technologies, combined with the liberalisation of product and labour
markets, and the deregulation of international financial flows, is stripping away
traditional source of competitive differentiation and exposing organisation knowledge
as the strategic foundation of the new business model. In practice, there are some
companies that have captured monopoly profit from their IT supplies, such as
Amazon.com and Sabre airline reservation system, have been able to gain competitive
advantage through novel use of IT. Both of those systems created more traditional types
of competitive differentiation. However, both of those cannot build competitive
advantage through new IT applications (Spender 2003), because the knowledge being
managed within the system becomes crucial.

Actually, knowledge assets are grounded in the experience and expertise of individuals,
whereas organisations provide the physical, social, and resource allocation structure so
that knowledge can be formed into competences (Teece 1998). Moreover, both of
competence and knowledge assets are configured and deployed to create competitive
outcomes and the commercial success of the enterprise.

Skandia, the large Swedish financial service company, has put knowledge assets in its
balance sheet. This company internally audits its intellectual capital every year for
inclusion in its annual report to stakeholders. One goal is to persuade investors of the
value of Skandia’s knowledge capital. Another is to focus the organisation on how to
increase or decrease effective use of knowledge assets over time (Davenport, De Long,
& Beers 1998).

In sum, knowledge can be developed by collecting and organising of excellent

expertise. Knowledge has become an essential asset of an organisation that cannot be
generated instantly, but it ought to be formed by process over time. Moreover,
organisations have put knowledge assets in their balance sheet.

Why Knowledge Management?

KM is the systematic process of creating, maintaining, and cultivating an organisation

to build the best use of its individual and collective knowledge to achieve the
corporation mission, broadly viewed as sustainable competitive advantage or achieving
high performance (Bennet & Bennet 2003a). Ndlela and Toit (2001) found that senior
management believes that the managing of knowledge is very important to success of
the enterprise, because knowledge is one of the most strategic weapons that can lead to
sustained increase in profits.

The goal of KM is for an organisation to become aware of its knowledge, individually

and collectively, and to have an effect on itself so that it makes the most effective and
efficient use of knowledge (Bennet & Bennet 2003a). According to Pearlson (2001),
who quoted from IBM, information and knowledge have become the fields on which
business compete. The following section presents several trends that emphasize the
need for business to manage knowledge for competitive advantage as illustrated in
figure 1.

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 Figure 1. Summarises the sustainable competitive advantage

Sustainable Competitive Advantage

 Shorter life Cycle
 Knowledge as an infinite resource
 Direct buttom-line return

Downsizing Globalisation
 Loss of Knowledge  Decreased cycled time
 Portability of workers  Increased competitive presures
 lack of time and resources for  Global access to knowledge
knowledge acquisition Why manage  Adapting to local condition
knowledge?

Embedded Knowledge Rapid Change

 Smart products  Avoid obsolescence
 Blurring of distinction between  Build on previous work
service and manufacturing firm  Streamline process
 Value added through intangibles  Sense and response change

(Source: Pearlson 2001, p.197)

Downsizing. Downsizing has changed the traditional contract between firms and their
employees, creating a mobile workforce that in the past. Employees are liable to change
jobs more frequently. Downsizing is also to retain knowledge within the organisation
rather than in the heads of individuals.

Globalisation. New computing and telecommunications technologies facilitate data,

information, and knowledge to flow instantly around the world, resulting in the
emergence of an interconnected global economy. In the past, land, labour, and capital
gave nation states organisations’ comparative economic advantage. Now, knowledge
based business can create new markets, attract and produce innovations with little need
for traditional requirements of land, labour and capital based on previously unforseen
patterns.

Rapid Change. It means that existing knowledge becomes outdated faster.

Consequently, employees ought to learn new skills in short term, because technology
and unexpected form of competition change speedily without announced daily. Thus,
organisations must have capability to sense and respond to changing trends and markets,
encourage creative innovation, and help employees to continuously learn and improve
their productivity.

Embedded Knowledge. Most organisations have embedded knowledge in their products

and services. They sell knowledge by add the most value to goods and services as
intangibles based on knowledge-based, such as creativity, engineering, design,
marketing, customer knowledge, and innovation. For instance, Matsusita, Japanese
Firm, developed automatic bread-baking machine by following some stages, namely (a)
this company sought out a master break, (b) this company observed its techniques, (c)
this company integrated those techniques into the functional machine.

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Sustainable Competitive Advantage. KM can be a source lasting and sustainable
competitive advantage. The life cycle of innovation is growing shorter, because of
difficulty to prevent competitor for copying and improving on new products and
processes. Moreover, the mobility of workers, the availability of power and relatively
inexpensive technology and reverse engineering create the advantages of new products
and efficient processes more difficult to maintain. Therefore, organisations need to
manage their knowledge for moving to new levels of efficiency, quality, and creativity.

According to Macintosh (1998 cited in Ndlela & Toit 2001), there are some points that
show the important of deploying knowledge assets of an enterprise in creating
competitive advantage and ensuring a sustained business edge, as listed below:
 Competition. The market place is increasingly competitive and the rate of
innovation is rising. Therefore, knowledge ought to be evolved and be
assimilated at an ever-faster rate.
 Customer focus. Organisations should be focus on creating customer value.
 The Challenge of a mobile workforce. There are trends for employees to retire
earlier and for increasing mobility, which leads to loss of knowledge. The
mobility of workforce will increase to the points where many employees will
regards their career as a series of projects sponsored by a series of companies.
 Equity in the work place. Organisations have to make sure there is knowledge
transfer from employees who are leaving the organisation to those remaining
within the organisation.
 The global imperative. Most organisations are becoming international in the
sense that they have foreign customer and supplier relationships. Therefore,
more and more organisations have translational operation that requires strong
organisational communications and knowledge retention capabilities.

Overall, the main reason why organisations employ KM is to sustain competitive

advantage by creating customer value and increasing value added of products and
services. Other reasons, such as downsizing, rapid change, and globalisation, have also
boosted organisations to encourage knowledge management process. For example, they
have to conduct their employees for learning new skills in short term in order to be
more creative and innovative, because technology and unexpected competition change
rapidly.

Knowledge Management in Action

KM is the latest corporate vogue. Whether an organisation is interested in saving

money, creating new products, managing its employees, or seeking new markets, KM is
fundamental. As a result, today, many organisations are struggling to understand and
then implement KM (Smith & McKeen 2003). Queen’s Management Research Centre
for Knowledge-Based Enterprises conducted a research to know what companies are
carrying out their KM today. This research centre organized a group of 25 senior
knowledge managers from various organisations (consulting, accounting, software,
public relations, telecommunications, finance, pharmaceuticals, and government) in
North America. The findings show seven different approaches to KM being taken that
have been done by those organisations (Smith & McKeen 2003), as illustrated below:

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  Developing client-centred knowledge management. Developing more knowledge
in products and services for their customers is one of the primary way
organisations to use KM. This action can also be called building organisational
memory, because it links customer touchpoints, such as sales, marketing,
technical support and account receivable, together and integrates multiple
interactions over time across a variety of differing channels.
 Improving Processes with Knowledge. Knowledge can be integrated into almost
any organisational process to improve such things as efficiency, effectiveness,
productivity, and quality. The forum members note that the biggest challenge is
turning knowledge in action. Thus, continuous improvement is one way
organisations are trying to do this.
 Developing Communities of Practice/Special Interest Groups. Organisations are
having increasing success building knowledge communities. A knowledge
community is a network of people who create, disseminate, and retain
knowledge in a particular area, such as competitive intelligence and expertise in
project management. There are two requirements in order to be effective in
knowledge communities. Firstly, this community ought to facilitate KM, such as
identification, creation, harvesting and organising of knowledge. Secondly, this
community have to provide a mechanism for knowledge application, such as
sharing, adaptation, and execution of knowledge to deliver business result.
 Developing New Measures. The new challenging is how to measure and value
knowledge. The traditional form of financial accounting only measure value
realisation, not value creation that based on knowledge. Thus, organisations
need a parallel system of reporting to measure value creation.
 Developing Knowledge Management Process. Implementing KM in an
organisation can often have people working at cross-purposes with each other
simply because they are focusing on different facets of the issue. The group
found that a company needs processes to:
o Collect knowledge from internal and external sources
o Identify what the company need to know
o Create new knowledge from innovations and new ways of looking at
information
o Use knowledge to make decisions and benefits customers
o Recycle experiences and lesson learned, including mistakes
o Leverage what is known to grow and build business.
The group also agreed that effective KM is a combination of people, process,
and tools. There are two key processes that provide the framework for KM,
namely: collaboration and content management.
 Using New Tools and Methodologies for Knowledge Management. Tools help
knowledge manager deliver the right information at the right time. Tools can
also be the catalyst to help transform how people work by giving them new way
to collaborate or access content management. There are some sample of KM
tools, such as e-mail/messaging, conferencing/chat, workflow, groupware,
portals, indexing, search and retrieving, data mining, data warehouse, training,
and intelligent agents. Moreover, methodologies are also useful for the success
of KM, although they are not always sufficient.

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  Developing Knowledge Products. These are not typically planned, but the results
are discovered by accident, when the hard-working team are processing in a
particular context. For instance, a pharmaceutical company began by mapping
what is known about individual diseases and their outcomes. The result has been
a new way to get the massive amount of evidence available on any diseases and
provide a common platform for understanding outcomes and interventions in a
disease. This platform has been linked to a series of health care decision points
and integrated into company strategy. It shows that company knowledge at each
of these decision points can provide added value to its customers and ultimately,
help the company to maintain its leadership position in the industry.

Implementation KM in Ford Motor Company

(Woldford & Kwiecien 1999)

The biggest asset a corporation holds is its employees’ knowledge, and Ford Motor
Company is making an effort to capitalise on this ability. The company, as a global
player, holds advantages in its ability to design, manufacture, and market the best
vehicles in the world. However, the company is unable to do so without the knowledge
of its people. Thus, to remain competitive in the new global economy, organisation
ought to optimise KM techniques so that they get closer to the customer, improve
business processes, and improve shareholder value.

Although there are better ways of doing business, there is no single best way. Ford does
not try to adopt best practices exactly, but Ford adjusts them to fit individual situation.
But a good practice can become a great practice when replicated across common
communities of practice.

Ford has combined the Ford Rapid Actions for Processes Improvement Deployment
(RAPID) replication and the Manual Base Practice Process into a single Web initiated
effort called Best Practice Replication Process (BPR). The former was designed to
explore an issue and come up with a series of recommendations that could be rapidly
implemented. In effect, it created knowledge. The latter was developed by Vehicle
Operation at a grass root level to share proven best practices among the assembly plants.

Ford has established Best Practice Replication Process, as an initiative that has proved
to deliver value from knowledge. Ford invested US$1,3 billion over the last five years
to increase value added in its business, and US$886 million in actual benefits has been
recorded. This global based process is deployed more than 20 countries. It uses a Web-
based intranet site that collects, distributes, and tracks the value of replicating proven
practice across the enterprise.

As a result, the company can collect 6000 replications a year on 2,800 practices. In
2000, the worked experience close to 8000 replications. Nowdays, web site contains
more than 2,800 proven practices, and 25 communities have recorded 16,000 plus
replications in the last three years.

In sum, this case shows that Ford has implemented the KM process. For instance, Ford
collects its best practice proven by the employees, and deploys it to all employees via
website for sharing knowledge.

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Summary

This paper has discussed knowledge as a key organisation resource. It begins with
discussion on the background of knowledge, including the relationship among data,
information, and knowledge; and the key components of knowledge. The next section
presented knowledge attributes, followed by discussion knowledge organisation that has
become organisation trends today. The next section presents knowledge as strategic
asset, followed by a discussion of the importance of KM for sustainable competitive
advantage. The final section presents KM in practice, including here the implementation
of KM in huge company, such as Ford Company.

The ownership of knowledge assets is not single field to sustain competitive advantage
in organisation. The important thing is ability to combine knowledge assets with other
assets to create value. Moreover, there are three factors that influence to build
knowledge in an organisation, namely people, process, and tools. Therefore, to be
successful in developing and managing knowledge, commitment of all employees is
needed, especially top management.

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