The Knowledge Factor

The Knowledge Factor

Companies in the Information Age need to systematically manage what they knowReader ROI Highly adaptive companies use knowledge to continually learn and grow. In this story discover - Why knowledge management is a foundation of organic companies - What the obstacles to knowledge management are - How companies evaluate knowledge Both inside and outside a company's gates, great things often begin at those fortunate moments when people with knowledge and vision pool their dreams. A perfect example: WorldCom, the company that merged with MCI to form MCI WorldCom, now the fourth-largest telecommunications company in the world, had its origins at a coffee shop in Hattiesburg, Mississippi, when four executives who knew the business got together exactly one month after AT&T's long-distance monopoly was broken by antitrust laws. Luck or knowledge? Of course, businesspeople can meet by design at regular times and places, but the spontaneous appearance of a group that can develop a shared vision has historically been the product of a chance meeting on the stairs, on the elevator, by the coffee machine or at the water cooler. Knowledge management proponents today believe that those chance interactions that mix and reformulate knowledge can and should be systematically encouraged. It can happen in one office, but time and geography are no longer constraints to collaborative work. The creation of a profitable idea -- like MCI WorldCom -- always takes hard work but is never just dumb luck. Larry Prusak, executive director of IBM's Institute for Knowledge Management in Waltham, Massachusetts, says: "All of life and business is a game of odds. Just as HR policies increase the odds of employee retention, and good customer service increases the odds toward repeat business, knowledge management is about increasing the odds toward knowledge being transferred, utilised and [contributing to] innovation." Knowledge, the most important asset in any company, is the key to survival in the Information Age. Yet companies are stumped on how to manage something that cannot be quantified, let alone universally defined. When it comes to mixing and remixing people's knowledge, executives know what they want to have happen; they just don't know how to make it happen. A 1997 report from the Ernst & Young Center for Business Innovation in Cambridge, Massachusetts, and Business Intelligence in London revealed that 94 per cent of 431 organisations surveyed in Europe and the United States have executives who believe "it would be possible, through more deliberate management, to leverage the knowledge existing in [their organisations] to a higher degree". Yet, while there's a lot of faith in the concept of knowledge management, 71 per cent of those same executives rated their businesses as average or worse at "embedding knowledge in processes, products and/or services". Knowledge management will remain an elusive goal until companies overcome the barriers -- both organisational and otherwise -- to instituting it.

While the severity of the obstacles to adopting effective knowledge management practices depends on how knowledge-intensive an organisation is (a software company ranks high on the knowledge scale, for example, and views knowledge as a key differentiator), there are common sticking points to getting started.

(For examples of how some companies are managing knowledge, see the tales throughout this story.) CIOs charged with a knowledge management project can benefit by carefully assessing the four areas discussed here that traditionally present challenges to any knowledge management effort.


Team management specialists and collaborative tools litter the landscape, but rugged individualism and entrepreneurial competition are entrenched human traits. While people may talk up team spirit, they also know that knowledge is power, and few are willing to give that up. The company that develops the right set of incentives for its employees to work collaboratively and share their knowledge will go a long way toward developing a successful knowledge management effort. According to Ernst & Young, 56 per cent of executives identify "changing people's behaviour" as the greatest single obstacle to knowledge management initiatives. As Debra Speight, vice president of information technology and CIO of Harvard Pilgrim Health Care in Brookline, Massachusetts puts it, "Corporate America is just learning that people don't like to share what they know." So any knowledge management effort has to make sharing knowledge profitable, not just for the company but for the employees.

All too often, companies pay for specific skills but give scant attention to compensating employees for what they know.

Michael Fradette, a partner with Deloitte Consulting LLC in Boston and co-author with Steve Michaud of The Power of Corporate Kinetics: Create the Self-Adapting, Self-Renewing, Instant-Action Enterprise (Simon & Schuster, 1998) suggests tying compensation to behaviour as well as to performance.

"Collaboration and sharing are types of behaviours that can be rewarded," Fradette says. Evaluating Knowledge Figuring a return for knowledge management initiatives is like trying to calculate payback from providing employees with telephones, paper and pens. According to International and US Chief Knowledge Officer Michael Turillo Jr of KPMG Peat Marwick LLP, the consultancy invested $US40 million in a knowledge management initiative called KWorld during a five-month period in 1998. The investment included capital outlays for hardware, software and the development cost of executive and management time consumed by planning and testing the system for the New York City-based firm.

Though satisfied with KWorld's early operation, a nagging concern for Turillo remains finding a proper way to evaluate the information in KPMG's knowledge repository, the Global Knowledge Exchange. Assessing the worth of information is a crucial step if a company wants to refine its methods or create a reward system for the employees who have generated the "best" knowledge. Turillo thinks a simple hit count on information use reveals little about its worth.

"I'm interested in quality," he says. "Who is using the information? Are they decision makers?" The company that tackles the valuation issue will have both a head start on the employee incentive problem and an edge on refining knowledge management processes for maximum profit.

Processing Knowledge

The dark swamp that may engulf knowledge management is discovering the techniques of how to gather, store, process and distribute the kind of knowledge that can't be tabulated in rows or columns. Chris Newell, executive director of the Lotus Institute of Knowledge, a Cambridge, Massachusetts-based organisation formed jointly by IBM and Lotus Development to research knowledge management tools and methods, believes that companies engaging in knowledge management initiatives need to emphasise the human element. Such companies should think of themselves as "in the human processing business, not the information processing business", he says. Effective knowledge management must allow organisations not only to stockpile and access information but to get at the history of how decisions were reached as well.

Acting On Knowledge

Any managerial theory that does not create change is nothing more than an academic exercise. Technology has eradicated time and geography as inhibitors to collaborative work, but only an organisation's commitment to change based on knowledge management will lead to the kind of learning and innovation that contributes to competitive advantage. Turning knowledge into action first requires gleaning the information that has meaning and relevance for a particular organisation. In the military, for example, managing knowledge is often less about balance sheets than it is about life and death. That's why the US Department of Defense (DoD) interviews soldiers following combat situations and catalogues the lessons learned in a shared database. The DoD believes that distributing the so-called ground truth to soldiers is not only worth the storage and bandwidth costs but also is -- for obvious reasons -- incredibly meaningful. And just as soldiers change their behaviour based on lessons learned by others, organisations can use knowledge to continually adapt to the ever-changing battleground of business.

Using knowledge to adapt and grow is a fundamental principle of organic life.

Yet many executives resist the idea of managing knowledge like other assets within a company. There's little doubt that knowledge management has about it the faint odour of the management theory du jour. At a recent conference on knowledge management, Bob Guns, the author of The Faster Learning Organisation: Gain and Sustain the Competitive Edge (Simon & Schuster, 1998), asked a seminar of executive believers, "What knowledge management strategy are you working on?" A voice from the rear of the room replied, "I'm trying to talk about it so my boss doesn't gag." To combat that kind of ingrained scepticism, companies often relegate knowledge management projects to a dedicated team. Such pigeonholing courts failure. To succeed at effectively managing knowledge, companies have to incorporate knowledge management completely into the cultural fabric, a shift that requires changes in both organisational and personal philosophy. Those changes are more profound than any state-of-the-art IT system can hope to deliver. Changing fundamental behaviour is always a tough prospect, but it's a necessary hurdle that companies must overcome. In the burgeoning knowledge economy, the companies that quickly and efficiently recognise, collect, store and distribute their knowledge assets throughout the organisation will triumph.

Changing the Culture


Lotus Development

With Lotus Notes on every desktop, Christine Cournoyer, the CIO of Lotus Development in the US, likes to brag that knowledge management works well at the Cambridge, Massachusetts-based company because "we have a robust infrastructure". But Lotus was encountering the same problems as many other companies that rely on tools without also taking a hard look at the corporate culture. Notes or not, employees were not regularly participating in online discussion groups or sharing lessons learned. As a vendor, there was a sense throughout Lotus that the company needed to experience exactly how a collaborative tool could create knowledge and how knowledge could in turn create change. If Lotus could not figure out how to maximise the use of knowledge harvested by its own product, what company could? Cournoyer was part of a 25-member executive team that took an active role in Lotus's knowledge management initiative, which got off the ground two years ago. Cournoyer initially turned her attention to the customer support help desk, where personnel did a sufficient job logging calls but didn't always enter what they learned from customers into a common database. The business goal of logging the complaints was easy to define: by identifying recurring problems with software, Lotus could spot potential bugs early on that would result in better customer relations, more efficient response times and ultimately, increased sales and profits. "The [tactical] goal became to define 'data capture' as a fundamental part of people's jobs," Cournoyer says.

Cournoyer's IS department responded by creating an applet to make on-the-fly data capture easier for personnel. Now, no call to the support desk is deemed complete until personnel have entered the substance of the call in Notes. Their completion rate is a metric of their performance review, an incentive that acknowledges the human behaviour element of the knowledge management problem.

Although unwilling to reveal exact metrics, Cournoyer will own up to the competitive value of knowledge management. "We've seen our customer support satisfaction increase significantly," she says. -- P GlasserProcessing Knowledge Tale2 KPMG Peat Marwick LLP The merger of Peat Marwick International and Klynveld Main Goerdeler in 1987 produced a Babel of cultures in the American, British, Dutch and German partnership known today as KPMG Peat Marwick LLP. "KPMG was not so much a global company as it was a collection of geographically identified franchises," says International and US Chief Knowledge Officer Michael Turillo Jr. Kworld -- KPMG's knowledge intranet that started in 1997 with a projected completion date in early 1999 -- is the company's strategic bet to make all its pieces work together. The knowledge base design respects the legacy of KPMG's consulting practice, which remains organised around product, industry and geography. KPMG users once had to physically locate the work of a specialist senior partner and potentially read through dozens of documents. With KWorld, expert information is available on the desktop. Extracting in-house knowledge about ERP installations for the petroleum industry in Germany, for example, is now only a few mouse clicks away.

Keeping the repository current occupies 15 full-time "knowledge editors" in KPMG's New York City office. The editors capture nonquantifiable knowledge from feeds that zap as many as 8000 published papers, speeches, books and magazine articles across their screens daily. -- P GlasserPutting a Value on Knowledge Tale3 Harvard Pilgrim Health Care Last spring Debra Speight, vice president of information technology and CIO at Harvard Pilgrim Health Care (HPHC) in Brookline, Massachusetts, grew concerned about her IS department's turnover problems. At that time, while she realised she couldn't always afford to retain employees, she was determined to at least hold on to the knowledge they gained while on the job. Speight now pays "knowledge bounties" of between $US1000 and $US5000 to departing IS employees based on the value of the knowledge they leave behind. Before they move on, departing IS employees write a document that serves as the outline for a conversation with a panel of peers, a supervisor and senior-level managers, who assess the value of the knowledge and award the bounty. Neatness does not count. "We're interested only in the value of the content," Speight says. One insight gleaned from an exit interview revealed that computer time on the IBM AS/400 is prioritised based on the working relationships among senior executives, departments and the IS group rather than on time-honoured traditions that had little to do with how work actually gets done. "The exit interview is a time when people can say what they want to say without risk," she says. The format that captured knowledge takes is a crucial point for Speight because she knows that different people learn in different ways. "For me, knowledge is tactile -- it's the living part of the organisation," she says. "Some people learn better from what they hear, some from what they read and some from what they see." To that end, HPHC is working toward an anecdotal feedback loop that will deliver sound and images to desktops via the company intranet.

Get Smarter

There's general agreement on the hierarchy of business intelligenceData Simple, indisputable facts. Companies with systems that gather transaction data are often pelted with so many facts that the stuff piles up like confetti after Lindbergh's parade. They don't call it "data glut" because it's pretty.

Often data is conveniently delivered in row-column formats. Your company owns its own data.

Data Example: Twenty per cent of all widgets are sold in Melbourne.


Mix two or more facts and cook up a new fact; you are creating information. A query to a database will put data into new juxtapositions, and a discriminating mind or a well-programmed robot will see this as new information. People hire assistants and subscribe to services that promise to filter out irrelevance and push them information they can use.

Information Example: The widgets sold in Melbourne are bought by new parents 9 times out of 10. KnowledgeAggregated information does not morph into knowledge. Knowledge bubbles up from hands-on or brains-on work performed by people in the field. Never forget, however, that knowledge is also a theory of how things can and will work that can change with time and place.

Knowledge Example: If we target new parents in Melbourne, we will double our sales of widgets; if we try this in Osaka, we will take a bath.


Practices that work in many times and places constitute wisdom. Whether an idea is wise or merely knowledgeable makes for sharp dinner conversation. In business, wisdom takes the form of accurately assessing knowledge and designing a plan of action.

Wisdom Example: Since in all times and all places, people will always need widgets, we will strive to manufacture and sell the finest widgets we can.

-- P Glasser

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