IS6921 - Knowledge Management

Session 1 Introduction to KM
Dr. Yulin FANG (yulin.fang@cityu.edu.hk)
Week1, 2009 Spring

Agenda
Objectives
Knowledge Management (KM)
Why KM
Myths about KM
KM Driving Forces
Knowledge Management Systems

Knowledge Management
A Socio-Technical Perspective
From a managerial perspective, KM is more about
organizational culture/processes than
technologies.
This course takes a balanced view of KM and you
will learn some organizational issues (Lectures 1
- 7) and some technologies (lectures 8 - 10).

Objectives

Describe what KM is and why KM

Discuss benefits and challenges
Explain knowledge management systems
(KMS) and their role in the organization.

Agenda
Objectives
Knowledge Management (KM)
Why KM
Myths about KM
KM Driving Forces
Knowledge Management Systems

Knowledge Management

In general, KM focuses on organizing and

making available important knowledge,
wherever and whenever it is needed.

Defined as performing the activities involved in

discovering, capturing, sharing, and
applying knowledge so as to enhance, in a
cost-effective fashion, the impact of knowledge
on an organizations' goal achievement.
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Knowledge Management

Nobody can really manage an asset (intellectual capital)

which resides in the heads of employees, and is shared
primarily through conversation.
What you can do: to manage the environment in
which knowledge can be created, discovered,
captured, shared, distilled, validated, transferred,
adopted, adapted and applied to create business
value.

Intellectual Capital
What is the difference between Knowledge and Intellectual Capital?
Intellectual Capital: the most valuable enterprise resources.
Human Capital: refers to the body of knowledge the company possess
and residing in the minds of the companys employees, vendors, and
customers;
Structural Capital: is everything that remains after the employees go
home e.g., databases, customer files, software manual, trademarks,
copyrights, and organisational structures.

Skandias Intellectual Capital Structuring

KM statistics (Global)

40% of Fortune 1000 firms have put someone in charge of KM, or have
a formal program.

Economist survey
Z

62% companies see KM as extremely important today

Z 77% see KM as extremely important within 3 years
Z 58% are currently sharing knowledge worldwide
Z 73% will share knowledge worldwide within 3 years

Every leading firms has had KM initiatives of some sort (2006)

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KM in Hong Kong

The service sector already makes up a higher proportion of Hong

Kong's GDP than any other economy in Asia and a significant
segment of its population are knowledge workers employed in
information-intensive businesses.

KM adds to this by strengthening companies' ability to innovate,

respond and compete through sharing and leveraging people's
knowledge and expertise.

Hong Kong moved further toward the "knowledge economy" today

with the launch of the Hong Kong Knowledge Management
Society (HKKMS). HKKMS founders include:
Z Public sector: Trade Development Council
Z Private sector: Cathay Pacific, Gartner, KPMG,

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Agenda
Objectives
Knowledge Management (KM)
Why KM
Myths about KM
KM Driving Forces
Knowledge Management Systems

12

Why KM
The most vital resource of todays enterprise is the
collective knowledge residing in the minds of an
organization's employees, customers, and vendors.
Therefore, effective processes and tools must be
developed to manage such vital resource for the
survival of any organizations, and for organisations to
achieve competitive advantage (productivity, agility,
innovation, reputation).

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Why KM

Make organizations better suited to compete

successfully in a much more demanding
environment.
Z
Z
Z
Z
Z

Increase relevant information access

Facilitate collaboration & knowledge sharing
Retain institutional knowledge
Overcome organizational & geographical boundaries
Shorten cycle time: eliminates redundant processes
Resulting in:
Z Increased productivity
Z Lower cost of doing business
Z Higher quality products, decisions & recommendations
Z More time analyzing rather than collecting data
Z Improved customer service and efficiency
Source: 2001-2005 About-Goal-Setting.com

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Does KM really pay off?

KM -> higher profit ratios?

Z Return on assets (ROA)
Z Return on sales (ROS)
Z Operating income to assets (OI/A)
Z Operating income to sales (OI/S)
Z Operating income to employees (OI/E)

KM-> lower cost ratios?

Z Total operating expenses to sales (OEXP/S)
Z Cost of goods sold to sales (COGS/S)
Z Selling and general administrative expenses to sales (SGA/S)

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MAKE Study

Most Admired Knowledge Enterprise (MAKE)

study by Teleos and its KNOW Network.

Since 1998, the study recognizes 20 MAKE

winners each year.

The study uses Delphi-oriented approach, a

panel of KM experts, and 8 KM performance
criteria.

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The Approach and the Panel

The panel of KM experts:

Z CEO,

CFO, and CIO of Fortune Global 500 (by sales).

Z Plus nearly 300 CKOs and leading KM practitioners.

The Delphi-oriented approach

Z Make

a worldwide list of candidate organizations.

Z Nominate up to 3 winners within and 3 winners outside
of their own companys industry; firms nominated by at
least 20% of the panelists are considered finalists.
Z Each panelist rates each finalist against 8 criteria.
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The 8 KM Performance Criteria

Establish an enterprise knowledge culture;

Top management support for KM;

Develop knowledge-based products;

Maximize the value of intellectual capital;

Create an environment of knowledge sharing;

Establish a culture of continuous learning;

Manage customer knowledge for loyalty;

Manage knowledge in ways creating shareholder value.

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Methodology (Holsapple and Wu 2008)

Take two samples (winners and other matched ones)
and compare the profit and cost performance of
each firm in one sample (KM winners) with a
matched firm in the other sample
Z treatment

sample - firms with superior KM performance.

Z control sample - firms matched to the treatment sample
by size and type.

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Results (Holsapple and Wu 2008)

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Results (Holsapple and Wu 2008)

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Results (Holsapple and Wu 2008)

Winner Firms
Control Firms

Return on Assets

0.15

0.15
0.124
0.108

0.108
0.1
0.1

0.1

Percentage

0.083
0.073

0.045

0.045

0.045

0.05

0.045

0.04

0.05
0.032
0.025

0.007
0

-0.015

-0.041

-0.05

-0.05
1998

1999

2000

2001

2002

Year

2003

2004

2005

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Summary of Results

KM winners enjoy higher profitability.

KM winners achieve lower total costs

(OEXP).

KM winners tend to have lower production

costs (COGS).

KM winners tend to have higher overhead

costs (SGA).
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2007 MAKE Winners

Global Winners (BOTH 2007 AND 2008)
McKinsey & Company (Global, overall)
Accenture (Global, 11 times-winner)
Ernst & Young (Global)
Wikipedia (Global)
North America
Apple (United States)
Fluor (United States)
General Electric (United States)
Google (United States)
IBM (United States)
Intel (United States)
Microsoft (United States)
3M (United States)

Europe
Nokia (Finland)
Royal Dutch Shell (The
Netherlands/United Kingdom)
BP (United Kingdom)
British Broadcasting
Corporation (United Kingdom)
Asia
Toyota (Japan)
Samsung Group (S. Korea)
Wipro Technologies (India)
Infosys Technologies (India)
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Source: 2007 Global Most Admired Knowledge Enterprises (MAKE) Report

Agenda
Objectives
Knowledge Management (KM)
Why KM
Myths about KM
KM Driving Forces
Knowledge Management Systems

25

Three myths (What KM is not)

(adapted from CIO Magazine)

Myth #1: KM technologies can proactively deliver the

right info to the right person at the right time
Z

Myth #2: KM technology can store human expertise

Z

This is missing the point based on outdated notion that we can anticipate
& predict our future info needs, decision makers and timing we cannot.

Not even close in fact, KM efforts to date are largely a misnomer (a

better term might be document management). Given the tacit and
diffused attributes of much information, we often do not even know what
we know!

Myth #3: KM technology can provide SCA

Z

Technology itself will not yield SCA, but it can symbolically and practically
foster a learning culture. With proper care & feeding, this can yield long
term competitive advantages.
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What KM is
Knowledge is first created in the peoples minds.

must first identify ways to encourage and

stimulate the ability of employees to develop
new knowledge.
must enable effective ways to elicit, represent,
organize, re-use, and renew this knowledge.
Must celebrate and recognize their position as
experts in the organization.

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What KM is

The people using the KM systems are the

integral part of the KM systems.

We use social mechanisms and

technologies to facilitate knowledge
workers to discover, share, and apply their
knowledge!
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Agenda
Learning Objective
Knowledge Management (KM)
Why KM
Myths about KM
KM Driving Forces
Knowledge Management Systems

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KM Driving Forces
Organizations need knowledge to make decisions!
Decision makers (e.g., a sales manager) employ
domain knowledge and experience to act quickly and
decisively based on the information available in the
business world.
Recent trends in the global business environment have
increase the stakes/importance of effectively managing
knowledge for decision making.

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KM Driving Forces
1.

Increasing Domain Complexity: Intricacy of internal

and external processes, increased competition, and the
rapid advancement of technology all contribute to
increasing domain complexity.

2.

Accelerating Market Volatility: The pace of change,

or volatility, within each market domain has increased
rapidly in the past decade.

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KM Driving Forces
3.

Intensified Speed of Responsiveness: The time

required to take action based upon subtle changes
within and across domains is decreasing.

4.

Diminishing Individual Experience: High employee

turnover rates have resulted in individuals with
decision-making authority having less tenure within
their organizations than ever before.

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So

Faced with increased complexity, market volatility and

accelerated responsiveness, todays younger manager
feels less adequate to make the difficult decisions faced
each day.

KM is important for organizations that continually face

downsizing or a high turnover percentage due to the nature
of the industry.

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Agenda
Learning Objective
Knowledge Management (KM)
Why KM
Myths about KM
KM Driving Forces
Knowledge Management Systems

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Knowledge Management Systems

Knowledge management mechanisms (e.g., mentoring,

retreats, etc.) are organizational or structural means used
to promote knowledge management.
The use of leading-edge information technologies (e.g.,
Web-based conferencing) to support KM mechanisms
enables dramatic improvement in KM.
knowledge management systems (KMS): the synergy
between latest technologies and social/structural
mechanisms

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KM, ERP, & CRM??

Does KM differ from content management, Enterprise
Resource Planning (ERP) and Customer Relationship
Management (CRM)?
Many software vendors market content management
systems as KM systems. However, Knowledge is more
than Information, and so KM systems should encompass
system functionality more than that of content
management systems

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Discussions

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KM Scenario 1
Auto Repair Shop (Vignette 1-1, p6)
The owner of an auto repair shop possesses the
knowledge for repairing Toyota family cars. The high
turnover rate of his mechanics caused problem in the
quality of the repair service and eventually the survival of
the shop.
He has the repair knowledge, and needs to capture it in a
way that it is easy to disseminate to the new mechanics.
He must find a way to manage this knowledge to survive.
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KM Scenario 2
The loan manager of the commercial loan department
at a commercial bank (e.g., HSBC) utilizes her rules of
thumbs e.g.,
(1) excellent history of the customer -> approving
(2) customers recent financial performance is good ->
approving
(3) and some official guidelines to approve or reject a
commercial loan application (usually involved millions
to billions of dollars).

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KM Scenario 2
This manager may be on short leave (e.g., maternity leave)
or permanent leave (retirement). Clearly, this is a need to
archive and re-use the commercial loan evaluation
knowledge.

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