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1 Introduction: The Problems and

Importance of Knowledge Management

By

B. Nugroho Budi Priyanto

Ref. [Tiwana chapter 1 & 2]

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Long before terms• Expert system• Core competencies• Best practices• Learning organizations• Corporate memory

• The only sustainable source of competitive advantage is their knowledge.

• Drucker: “those who wait until this challenge indeed becomes a ‘hot’ issue are likely to fall behind, perhaps never to recover.”

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Eras of knowledge management

Era ExpertSystems

DocumentManagement

It's OnThe Web

ManagingKnowledge

Work

MotivatingIssue

ScarceExpertise

LeveragingDispersedContent

ConnectingScattered

Community

CoordinatingDistributed

Talent

Metaphor Expertin a box

Library YellowPages

CommonplaceBook

IconicTechnology

RulesBased

System

DocumentRepository

Portal Weblog

Key Role KnowledgeEngineer

Librarian Webmaster IndividualKnowledge

Worker

ArchetypalExample

XCON KnowledgeExchange

Yahoo Scripting News

Gating Factor If...Then Rule Taxonomy Search Newsfeed

MetaphoricalQuote

"Only theShadow Knows"

"The Bible says..." "Where is...?" "Look whatI'm doing"

LessonLearned

Experts can'tdecode tacitknowledge

Libraries are a necessarybut not sufficient

condition for effectiveknowledge use

Signal/noise ratiooverwhelms search

engines.Self-organizing isn't

Augmentation worksbetter thanautomation

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Why knowledge• Knowledge management is evident.

• 98% of senior manager of KPMG survey believe the reality of KM

• London Times calls it the “fifth discipline” after business strategy, accounting, marketing and human resources

• 40% of the US economy is directly attributable to the creation of intellectual capital

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What’s knowledge?

• Working definition of knowledge by Thomas Davenport and Laurence Prusak:– Knowledge is a fluid mix of framed experience,

values, contextual information, expert insight and grounded intuition that provides and environment and framework for evaluating and incorporating new experiences and information. It originates and is applied in the minds of knowers. In organizations, it often becomes embedded not only in documents or repositories but also in organizational routines, processes, practices, and norms.

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What’s Knowledge Management

• According to Kirk Klasson– KM is the ability to create and retain greater value from

core business competencies.

• KM address business problems particular to your business:– Whether it’s creating and delivering innovative

products or services

– Managing and enhancing relationships with existing and new customers, partners, and suppliers

– Or administering and improving work practices and processes.

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KM’s value proposition• Why we have to manage the knowledge in very

competitive era?– Companies are becoming knowledge intensive, not

capital intensive– Unstable markets necessitate “organized abandonment”– KM lets you lead change so change does not lead you– Only the knowledgeable survive– Cross-industry amalgamation is breeding complexity– Knowledge can drive decision support like no other– Knowledge requires sharing; IT barely support sharing– Tacit knowledge is mobile– Your competitors are no longer just on your region.

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Managers’ tools through the decades• 1950s: PERT

– Focus shifts toward distributed expertise & knowledge• 1960s: Centralization & Decentralization

– Tacit knowledge becomes a part of the picture• 1970s: The Experience Curve

– Cultural specificity is recognized• 1980s: Corporate culture

– Learning, unlearning and experience are taken into account

• 1990s: The Learning Organization– KM emerges as the unifying corporate goal

• 2000s: Knowledge Management

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In a global economy

• Davenport and Prusak suggest:– Knowledge may be your company’s greatest

competitive advantage”

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Why should KM

• Two types of companies:– Realized the need to keep up with its

competitors and remain legitimate player– One step ahead: it already has the core

knowledge necessary

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What’s behind the Buzz?

• KM is not technology problem; it is a process problem

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What KM is not about

• KM is not about knowledge engineering

• KM is about process, not just digital networks.

• KM is not about building a “smarter” intranet.

• KM is not about a one-time investment

• KM is not about enterprise-wide “infobahns”

• KM is not about “capture”

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The growth of KM

• Tom Davenport’s 1998 bestseller, “Working Knowledge: How Organizations Manage What They Know”, Havard Business School Press.

• Ikujiro Nonaka, 1995 “The Knowledge Creating Company”, Oxford University Press. (in 1991 Havard Business Review paper)

• Peter Drucker, 1993 “The Post Capitalist Society”, Harper Business Press

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The 10-Step Roadmap1. Identify Knowledge that is critical to your business2. Align business strategy and KM3. Analyze knowledge existing in your company4. Build upon, not discard existing IT investment5. Focus on processes, and tacit, not just explicit knowledge6. Design a future-proof, adaptable KM system architecture7. Build and deploy a result-driven KM system8. Implement reward structures, leadership, and cultural

enablers needed to make KM work9. Calculate ROI and apply Knowledge Metrics10. Learn from war stories

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The Knowledge Edge

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Getting to why: The New World

• Market value of company is not related to their assets & annual sales, eg– MS: $14B+$12B, have MV $400B– Far exceeding than GM, Ford & Mitsubishi

combine (with rank < 10 in Fortune 500)– Intel: $28B+$25B, have MV $130B

• Accounting for Abnormal Differences• Market valuation: the measure value that

investors and market associate with a company

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Top 15 US Companies# Company Market Val. ($ B)

1 Microsoft $375

2 General Electric $335

3 Intel $200

4 Merck $195

5 Wal-Mart $194

6 Pfizer $172

7 Exxon $161

8 IBM $159

9 Coca-Cola $158

10 Cisco Systems $155

11 MCI WorldCom $152

12 AT&T $149

13 American International Group $141

14 Lucent Technologies $134

15 Citigroup $133

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• Ford, Chrysler, nor Mitsubishi even appear on the list.– Neither investor nor the markets perceive these

capital intensive, production-oriented companies as having more value than even Citigroup, which comes last on the list.

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Market Valuation some New Company

# Company Market Val. ($ M)1 eBay $24,000

2 Amazon.com $18,024

3 Priceline.com $15,000

4 eToys Inc. $6,000

5 Broadcast.com $4,00

6 Infospace $2,300

7 Go2Net (formerly MetaCrawler) $1,400

8 Value America $1,034

9 Marketwatch.com $712

10 Xoom $700

11 eFax $139

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A common theme

• One common theme that brings all these companies and their very different reason for successful. Its their intangibels:– Brand recognition

– Industry-driving vision

– Patents and breaktroughs

– Customer loyalty, their reach

– Innovative business ideas

– Anticipated future prouduct

– Past achievements

– Ground-breaking strategies

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The 24 Drivers for KM (1)

• Knowledge-Centric Drivers1. The failure of companies to know what they

already know2. The emergent need for smart knowledge

distribution3. Knowledge velocity and sluggishness4. The problem of knowledge walkouts and high

dependence on tacit knowledge5. The need to deal with knowledge-hoarding

propensity among employees6. A need for systematic unlearning

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The 24 Drivers for KM (2)

• Technology drivers7. The death of technology as viable long-term

differentiator

8. Compression of product and process life cycle

9. The need for a perfect link between knowledge, business strategy, and information technology

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The 24 Drivers for KM (3)

• Organization structure-based drivers10. Functional convergence

11. The emergence of project centric organizational structures

12. Challenges brought about by deregulation

13. The inability of companies to keep pace with competitive changes due to globalization.

14. Convergence of products and services.

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The 24 Drivers for KM (4)

• Personnel drivers15. Widespread functional convergence

16. The need to support effective cross-functional collaboration

17. Team mobility and fluidity

18. The need to deal with complex corporate expectations

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The 24 Drivers for KM (5)

• Process focused drivers19. The need to avoid repeated and often-

expensive mistakes.

20. Need to avoid unnecessary reinvention

21. The need for accurate predictive anticipation

22. The emerging need for competitive responsiveness.

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The 24 Drivers for KM (6)

• Economic drivers23. The potential for creating extraordinary

leverage through knowledge; the attractive economics of increasing returns.

24. The quest for a silver bullet for product and service differentiation.

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KM Wagons, Contents and Horses (1)Wagons

(Category)

Contents

(Factors)

Horse

(Drivers)Knowledge-Centric Awareness

Distribution

Emergence

Preservation

Application

Creation

Validation

{1,2,3,4,5,6}

[7,13,14,19,20,23,24]

{ } : Primary drivers[ ] : Secondary drivers

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KM Wagons, Contents and Horses (2)Wagons

(Category)

Contents

(Factors)

Horse

(Drivers)Technology Pressures

Failures

Influence

Strategic Use

{7, 8, 9 }

[8, 23, 24 ]

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KM Wagons, Contents and Horses (3)Wagons

(Category)

Contents

(Factors)

Horse

(Drivers)Organizational Structure

Convergence

Structural emergence

Effects on structure

Moderating influence of IT

Impact of knowledge flow

Deregulation

Globalization of divisions

Strategy

{ 10, 11, 12, 13, 14 }

[ 15, 17, 22 ]

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KM Wagons, Contents and Horses (4)Wagons

(Category)

Contents

(Factors)

Horse

(Drivers)Personnel Cross-functional

collaboration

Functional convergence

Mobility

Fluidity

Levels of management

Levels of employees

Decision hierarchies

{ 15, 16, 17, 18 }

[ 22, 10, 11, 2, 3, 5 ]

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KM Wagons, Contents and Horses (5)Wagons

(Category)

Contents

(Factors)

Horse

(Drivers)Process How-to

Know-How >> Know-what

Reuse and accuracy

Responsiveness

Strategy implementation

{ 19, 20, 21, 22 }

[ 24, 23, 14, 8, 9 ]

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KM Wagons, Contents and Horses (6)Wagons

(Category)

Contents

(Factors)

Horse

(Drivers)Economics Bottom line effects

Extraordinary leverage

Increasing returns

Long-short-term consideration

Long-short-term goals

{ 23, 24 }

[1, 2, 4, 7, 8, 12, 16, 19, 21 ]