Knowledge Management 538
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Knowledge management refers to an organization's strategic efforts to gain a competitive advantage by capturing and using the intellectual assets held by its employees and customers. Efforts to archive best practices and lessons learned, and to make better use of information stored in databases, also fall under the rubric of knowledge management. Advocates of knowledge management believe that capturing, storing, and the distributing knowledge will help employees work smarter, reduce duplication, and ultimately produce more innovative products and services that meet the customers' needs and offer a good value.

If a company knows something (e.g., changing tastes of the customers, innovative solutions to international tax issues, or how to use information systems to better monitor production processes) that its competitors do not, then that company has an opportunity to offer a distinguishing product or service. Knowledge management, as a business practice, impacts the entire organization by helping employees, managers, and executives share information and best practices that positively impact collective performance. Unlike downsizing, which emphasizes the reduction and control of costs (often through attrition and layoffs), knowledge management is a value-adding practice that seeks to enhance profits, innovation, and decision making by providing more and better information to every member of the organization.

To better understand why knowledge has become a critical factor in businesses, we need to understand that the United States and many other industrial countries are moving toward a knowledge economy. A knowledge economy is one where a majority of workers spend their day applying know-how to the production of goods and delivery of services. In a knowledge economy, employees work to improve decision-making, design, and delivery processes, while only a limited number of people are involved with the actual manufacturing of goods. Important questions that we might ask about a knowledge economy include:

American labor trends indicate that the percentage of people working in an information-intensive capacity is increasing while the number of people working in agriculture, manufacturing, nonprofessional service industries is decreasing.

As another indicator of the shift, during the second half of the twentieth century, knowledge-intensive companies (those that have 40 percent or more knowledge workers) account for 28 percent of the total U.S. employment and produced 43 percent of all new employment growth.

The rapid increase in knowledge-intensive work is often attributed to communication technologies, and especially digital technologies, that allow employees to transfer or access large amounts of data in minutes. Since the end of World War II, the world has seen the invention of the first programmable computer, satellite technology, fax machines, microprocessors, floppy disks, portable computers, cellular telephones and pagers, and the World Wide Web. All of these technologies are historically important because they allow great quantities of information to be shared with partners who are geographically separated from us and who, using earlier technologies, might have had to wait hours, days, or even weeks to receive information. Technology has, in effect, brought people closer together by allowing voice, text, and images to be rapidly transmitted across great distances.

In 1969, the Department of Defense launched the Advanced Research Project Agency, which created a distributed network (precursor to the Internet) that allowed researchers to share information and connect with other computers on the network. Later, researchers added e-mail bulletin boards to the system so that messages could be transmitted back and forth. This broad digital network took information sharing to an entirely new level. Whereas a fax machine might be able to transfer 2,000 words from New York to Los Angeles in a matter of minutes, this new digital network—today represented by the World Wide Web—allows information to be transmitted at the speed of light. Current statistics indicate that an ever-increasing number of people are using the Web to communicate and gather information. In 1983, there were an estimated 2,000 people using the Arpanet. In 1990, the count increased to just over 1 million users. By 2005, it was estimated that more than 900 million people worldwide would be using the Internet that year to gather and transmit information, and this figure was expected to more than double within five years. The consequence of all this growth is that decision makers now have almost instant access to large quantities of data that can be used to improve decision-making, strategic planning, and product design, and customer service.

Recognizing that knowledge systems are usually based on local area network (LAN) or Internet technology, several critical questions arise when an organization attempts to implement a knowledge management system. First, how do you measure the value of a knowledge management system? Like soft-skills training, many organizations and experts are struggling to measure the value added by a knowledge management system. For example, the value of new technology in a manufacturing plant can be measured with relative accuracy and be said to decrease production costs by a certain amount per unit. Knowledge management systems, however, commonly do not have such a direct impact on operations. How can we accurately measure value of having immediate access to information that improves decision-making or strategy?

Another problem is, how do you create an organizational culture that values sharing? The old adage "Information is power" exemplifies the cultural reasons why knowledge management systems can be challenging to implement. Traditionally in the United States, employees have been recognized and rewarded for individual effort and achievement. Collaborative effort and cooperation have not traditionally been rewarded. Consequently, implementing a knowledge management system may likely require that an organization reassess the values by which business is conducted, the performance evaluation instruments, and the pay/bonus structures so that employees see ample incentive to share knowledge and cooperate through-out the organization.

How much information is too much? Information overload is a concern in organizations that are developing a knowledge management system. What information do we attempt to capture and make available? What information do we overlook? In large organizations, the answers to such questions can have a dramatic impact on the quantity and quality of information available to employees.

Finally, can knowledge really be captured? Knowledge managers assume that knowledge can be captured, replicated, and made useful for other members of an organization. Much knowledge, however, is tacit. It is unexpressed. For example, how do we capture the knowledge that an operations manager develops after years of working in manufacturing plants? How do we capture the sense of history, the habitual patterns of thinking, or the principles for good decision making that have proven effective over the years? If explicit knowledge is framed by tacit knowledge, how do we capture and share both forms of knowledge so that the user of the knowledge management system does not feel like the recipient of baseless or de-contextualized facts and figures?

SEE ALSO: Electronic Commerce ; Electronic Data Interchange and Electronic Funds Transfer

Michael A. Netzley

Revised by Hal P. Kirkwood , Jr.


Harvard Business Review on Knowledge Management. Boston: Harvard Business School Press, 1998.

Huotari, M.L., and M. Iivonen. Trust in Knowledge Management and Systems in Organizations. Hershey, PA: Idea Group Publishing, 2003.

Malhotra, Y. "Integrating Knowledge Management Technologies in Organizational Business Processes: Getting Real Time Enterprises to Deliver Real Business Performance." Journal of Knowledge Management 9, no. 1 (2005): 7–28.

Stewart, Thomas A. Intellectual Capital: The New Wealth of Organizations. New York: Doubleday/Currency, 1997.

Vouros, G.A. "Technological Issues Towards Knowledge-Powered Organizations." Journal of Knowledge Management 7, no. 2 (2003): 114–127.

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