Enhancing Organisational Performance
Through Knowledge Innovation:
A Proposed Strategic Management
Framework
Andrew Goh, University of South Australia
ABSTRACT:
The field of knowledge management (KM) has
emerged strongly as the next source of competitive advantage. However, as to
how knowledge management (KM) practices can be employed in the pursuit of
innovation has yet to be firmly established. Firstly, this article describes
the significance of knowledge by explaining the transition from ‘information
revolution’ to ‘knowledge revolution’. Secondly, it explains why KM could
enable knowledge innovations to flourish, and describes how information and
communication technologies (ICT) could be exploited for this purpose. Thirdly,
it develops a strategic management framework for leveraging knowledge
innovation (KI) by providing practical considerations on knowledge-centred
principles, knowledge-sharing infrastructures and knowledge-based initiatives.
Finally, it outlines the future challenges for organisations to exploit the
benefits of knowledge innovation.
1. Introduction
1.1. Emergence
Of Knowledge Management (KM)
In the last decade or so, with the significant role played by knowledge-intensive businesses in the economy, the term “knowledge management (KM)” has generated a lot of interest in corporate sectors. However, it continues to be conceived with a broad context, for instance, as a process through which organisations generate value from knowledge assets. Given that the Internet has been evolving steadily for decades since its origins in the US APRAnet project in the 1960s and now used as a vital KM tool, the field of KM has strongly emerged as a ‘hot discipline’. Many see it as the next source of competitive advantage, with applications in diverse areas like R&D, medicine, marketing and software engineering.
At the same time, “innovation management (IM)”- which is a field of discipline that deals primarily with issues relating to how the innovation process could be managed effectively, has attracted much attention too (Goh, 2004; Harkema and Browaeys, 2002; Giget, 1997). With innovations as the mainstay of today’s business, IM is now an organisation’s core function. Yet, research on how well knowledge assets may be captured, managed, and utilised for innovation has been less forthcoming. Currently, both KM and IM represent areas of management that seemed to reside in separate spheres of influence, with almost no impact on one another. Nevertheless, one major area of management concern confronting organisations lies in making efficient use of knowledge assets to create better, faster and more cost-effective innovations.
1.2. Integration
Of KM And IM
The immediate strategic concern, as global competition amongst firms intensifies, appears to be more than just dealing with KM or IM issues separately. Rather, it involves acquiring the ability to harness KM practices for IM processes as a deliberate strategy that would bring organisations up the performance ladder. In the past, organisations, which rely on the success of new innovations to sustain organisational performance, often ask themselves the question: “How can innovation improve our organisational performance?” With knowledge innovation (KI) as a potential source of competitive advantage, organisations are now asking: “How can the pursuit of KI enable us to sustain our long-term competitive advantage in the new business world?”
To provide insights into the strategic management of KI, the two streams of thinking behind knowledge management (KM) and innovation management (IM) need to be drawn closer. Understandably, common strategic issues of KM and IM may shed light on how both areas can be better integrated, with the aim of elucidating theoretical perspectives based on practical considerations. To offer a more profound appreciation on this aspect of management on knowledge innovation (KI), a strategic management framework is proposed, as a conceptual model to help organisations understand how knowledge innovation can be managed in a more holistic, inclusive and co-ordinated manner.
Figure 1 provides a pictorial representation for the potential integration of the two disciplines, namely: innovation management (IM) and knowledge management (KM) to introduce a strategic management approach towards leveraging knowledge innovation as a source of sustainable competitive advantage.
Figure 1: Knowledge Innovation (KI) As A Source Of Sustainable
Competitive Advantage
2. The
Significance Of Knowledge
2.1. Transition
To Knowledge Revolution
In the new economy,
knowledge is the primary resource for economic development; and land, labour
and capital – the economist’s traditional factors of production – do not
disappear, but they simply become secondary (Drucker, 1994). Traditional
factors of production are limited by a threshold of scale and scope as every
marginal increase in land, labour or capital results in diminishing returns on
additional investment. By contrast, a different law of economics governs the
returns from knowledge: investment in every additional unit of information or
knowledge created and utilised results in a much higher return [3]. The ‘what’
that impacts on traditional types of innovation has shifted from “tangibles and
physical assets” to “processes wherein various forms of knowledge are absorbed,
assimilated and shared with the objective of creating new knowledge
innovations”. Under such a
scenario, knowledge becomes key to enhancing organisational performance.
While innovation
practitioners recognise the importance of knowledge, the apparent confusion
between the value of ‘knowledge’ and ‘information’ has caused organisations to
sink billions of dollars in information technology (IT) investments that have
yielded marginal economic results (Strassman, 1997).
This prevailing disconnect between IT expenditures and organisational
performance can be attributed to an economic transition from an era of competitive
advantage centred primarily on information to one based on knowledge (Malhotra,
2000; 1997). In fact, the rising interest in knowledge innovation as a
strategic lever of organisational performance is not entirely new. Back as the mid-nineties, support for
knowledge innovation was already prevalent.
Increasingly, it is evident
to organisations that the ‘information revolution’ has been superseded with
‘knowledge revolution’. To succeed in the new knowledge economy [6],
organisations who are able to capitalise on the opportunities arising from the
availability of knowledge assets and ultimately derive the most value from them
will be the industry winners.
Those who cannot will be the industry losers. But to harness the most
value from these assets, organisations must identify the types of knowledge
assets that benefit businesses and understand how KM practices can be
implemented effectively. Hence, one practical implication of KM
research is to contribute new findings that would help practitioners implement
and improve the use of knowledge assets, regardless of the context or business
objective.
2.2. The
Practice Of Knowledge Management (KM)
Knowledge adds value to an
organisation through its contribution to products, processes and people, while
KM transforms information, data and intellectual assets into enduring value by
identifying “useful knowledge” for management actions (O’Dell, 1996). In recent years, particularly, theory
development relating to KM practices has evolved to be of considerable interest
to management writers, strategy thinkers and industry practitioners. Coupled
with organisational need to innovate, this interest on KM has been propelled
alongside that of innovation management (IM). With better recognition placed on the practical relevance of
KM to business, organisations are beginning to invest in ad-hoc project
initiatives to leverage on knowledge for business use [7].
So far, the contribution
made KM practices has been significant.
One example of the escalating intensity of knowledge in products is the
intelligent car, whose engine management systems can monitor the functions of
vital engine parts and 'knows' in advance which part needs servicing and thus
improves the car performance. Another example of knowledge in processes is the
sharing of best practices, such as in high-tech semiconductor fabrication
plants, which can bring about huge savings in capital investments. In the case
of people, the “skilled knowledge” of highly experienced individuals in
commercial transactions (e.g. multi-billion dollar contract negotiations)
contributes to whether knowledge-intensive businesses would succeed or
fail.
With KM practices being of
significant impact to organisational performance, it resulted in a
proliferation of KM tools such as expertise access tools, e-learning
applications, Web portals, discussion and chat technologies, electronic message
boards, synchronous interaction tools, and search and data mining tools. While the benefits of KM correlate
directly to bottom-line savings, there is nonetheless a risk associated with
investments in KM, as they do not necessarily lead to expected benefits due to
implementation failures (Lindgren and Henfridsson, 2002; Storey and Barnett,
2000; Fahey and Prusak, 1998).
Yet, the economic impact of KM practices to business is manifested in
three areas of any organisation as mentioned above. They are, namely: products
like patents or technology licences (intellectual capital), processes like
financial procedures or manufacturing methods (structural capital) and people
like skilled manpower or specialised talents (human capital).
2.3. Evolution
Of Knowledge Innovation (KI)
Today’s organisations are in an unending struggle to differentiate themselves from relentless competitors, as markets become saturated with new innovations all the time. The ability to differentiate depends on the “intelligent use” of knowledge assets for innovation. As a result, many organisations have been trying new techniques based on unique production processes, rare and distinct skills, creativity, and now on management initiatives such as supply chain management and customer relationship management (Gold et al, 2001).
As global competition
intensifies, there were great expectations that knowledge-based computer systems
(e.g. expert systems or decision support systems) could be employed as a KM
tool. For close to two decades,
the search for KM tools was centred on stand-alone information systems (IS)
such as CASE tools or commercial expert system shells. In retrospect, part of the problem was
that system developers have focused too much, perhaps overly so, on developing
'thinking machines', rather than designing these ‘machines’ to augment “human
thinking”. Seemingly, it was felt that the roles of information management and
knowledge management should be separated and played by machines and humans
respectively. Only human beings can take the central role in KM, not computer
systems even with the most powerful information-processing capabilities [8]
(Nonaka, 1991; Nonaka and Takeuchi, 1995). It became clear that the use of IT-based KM tools should
equip organisations with the requisite competencies needed for innovation; and
not replace individuals by “thinking machines’. Three kinds of physical IT systems are needed for KM
practices to be effective, namely: capture tools (e.g. intelligence databases),
communication tools (e.g. distributed networks), and collaboration tools (e.g
interactive web pages).
Organisations are now fast
working towards being recognised as an exemplar of KM practices; and to earn a
sizeable payback for their efforts, the real payoff lies in leveraging
knowledge for innovation. To cite
an example, Nokia, an organisation that has consistently applied KM practices
in its business, has yielded considerable benefits in innovation-related and
product development functions.
Nokia makes use of KM practices extensively to understand market trends
and customer requirements and puts useful knowledge into action for its
innovation pipeline. It is thus
not surprising that industry analysts reported that Nokia continually delivers
a new mobile communication product every 25 days!
3. A
Strategic Management Framework
3.1. Motivation
Currently, the mainstream
KM literature relating to IM does not deal adequately the strategic management
of KI as an area of concern. On the one hand, most writers concerned with
knowledge management (KM) issues, unlike innovation theorists, tend not to
exhibit the same degree of understanding on the economic significance of innovation. On the other hand, innovation writers
are often less able to articulate how KM practices can be applied as an
effective strategic management tool.
Nevertheless, virtually every organisation is now grappling with the
opportunities presented by KM, including new ways to acquire, assimilate and
share knowledge in the pursuit of innovation. By now, it is evident that the
emergence of knowledge innovation is not only offering immense potential for
organisations to gain a sustainable competitive advantage over rivals, but also
providing viable means for improving organisational performance [9].
Instead of investigating
“what goes into the bolts and nuts of knowledge innovation” - which is
dependent on business context and is industry-specific, it is more appropriate
to concentrate on the strategic management of knowledge innovation (KI). The
current vein of thinking centres on: “which strategic aspects of management
should knowledge innovation focus on?”
Understanding these issues may provide new insights into how KI can be
better fostered. Hence, a
strategic management framework is proposed to guide organisations on aspects of
management that would strategically affect the successful implementation of
knowledge innovation.
So far, the noticeable lack
of an integrated view of managing knowledge innovation (KI) has led to a
certain degree of confusion. In
particular, two areas of literature on KI have yet to be addressed. Firstly, a definition of knowledge
innovation (KI) needs to be specified to put in perspective of its impact on
the success of enterprises, economy and society; and to identify the key
elements that underscore the importance of knowledge assets and the management
actions required for KI. Secondly,
since a comprehensive model for understanding the strategic aspects of KM
practices in innovation is not yet apparent in extant literature, integrating
KM and IM within the strategic management framework would be necessary. However, two pertinent questions remain
to be answered: One, what are knowledge assets? Two, what does a knowledge
innovation really constitute?
3.2. What
Are Knowledge Assets?
Not all information can be
considered as ‘knowledge assets’. Very often, organisations determine what
information qualifies as knowledge assets, depending on the context and
business objective. In general, knowledge assets fall into two categories:
explicit or tacit. Included among
the former are patents, trademarks, business plans – any information that can
be documented, archived and codified, often with the help of information
technology (IT). In the case of
the latter, it is much harder to grasp as the information is contained in
people's minds and the real difficulty is to document, share and manage it
effectively (Amidon, 1997; Drucker, 1988).
3.3. What
Does A Knowledge Innovation Really Constitute?
Although it was Drucker in
the 1950s who first coined the term ‘knowledge worker’, it was only until
fairly recent that corporate leaders and policy-makers began to strongly
acknowledge that successful innovations are increasingly knowledge-intensive.
Amidon (1997) has aptly described ‘knowledge
innovation’ as the creation, evolution, exchange and application of new ideas
into marketable goods and services, leading to the success of an enterprise, the
vitality of a nation's economy and the advancement of society. In gist, two key
elements are present in KI. One, it recognises that knowledge is a
key element. Two, the actions associated with the management of knowledge is
another key element. Yet, it is less clearly delineated as to what extent the
literature between KM and IM has overlapped for insights to be drawn into the
management of KI (Harkema and Browaeys, 2002; Miller and Morris, 1999; Rogers,
1995).
4. Strategic
Management Of Knowledge Innovation
The tacit nature of an organisation’s knowledge assets and the long-term requirements for continuous innovation call for a different approach to managing knowledge innovation. Current thinking points to the strategic management of knowledge innovation (KI) as a more effective competitive tool to support organisational performance (Gupta and McDaniel, 2002; Clarke and Rollo, 2001; Probst et al, 1999). Given the wide range of KM tools available, organisations are racing to revolutionise their approaches to utilise knowledge for innovation. However, applying available KM tools alone that ran the gamut from standard, off-the-shelf computer packages to sophisticated software systems designed to support knowledge management (KM) activities is hardly adequate. Instead, it involves unique and highly professional skills – which are difficult to be trained, learned and assimilated.
Focusing on strategic management issues is more appropriate because the emergence of KI is never stagnant but adjusts in response to ever-changing environments and new market conditions. Despite the relevance of knowledge assets to innovation management (IM), one wonders why has there been so little literature written on knowledge innovation (KI) in the first place. Recognising that KI should be strongly guided by knowledge-centred principles, with the necessary knowledge-sharing infrastructures required to facilitate knowledge-based initiatives, it must be acknowledged that it implementation depends ultimately on human inputs of decision-making, experience sharing and creative responses by talented individuals.
Clearly, a strategic management framework constitutes a normative quest to offer a better understanding of managing knowledge innovation (KI), as illustrated in Figure 2, in terms of perspectives on principles, infrastructures and initiatives. It provides a management tool for organisations to analyse whether their roles in strategic aspects of management, have been fulfilled. As the framework extends beyond isolated KM practices, tools and physical systems, its conceptual development is therefore based on a comprehensive overview of KM literature applicable to innovation management (IM). Furthermore, while the actual KM implementation may be firm-specific and technology-dependent, the strategic management framework nonetheless offers an integrative view of how knowledge innovation (KI) could be strategically managed.
Figure 2: A Strategic Management Framework
5. Knowledge-Centred
Principles
If KM practices are to be
incorporated into IM processes as a competitive tool for supporting KI,
organisations should embrace their roles based on an evolving set of
knowledge-centred principles. Through a distillation process of contemporary
literature, six knowledge-centred principles relating to managing KI seem to
distinguish themselves from the other conventional management approaches as
summarised below (Harkema and Browaeys, 2002; Davis and Botkin, 1999; Miller
and Morris, 1999; Skyrme and Amidon, 1997, Davenport,
1993).
1.
Understanding
Innovation Value System (not Value Chain) – A value chain is linear and static,
while a value system is non-linear, dynamic and represents interdependent
relationships that need to be understood, considered and developed for KI;
2.
Formulating
Collaborative Knowledge Strategy (not Competitive Information Strategy) – The
latter strategy creates win-lose scenarios due to competition for the same
information pie, while former strategy encourages win-win situations through
symbiotic relationships by sharing and growing the knowledge pie;
3.
Developing
Strategic Knowledge Networks (not Strategic Business Units) – The latter
applies isolated islands of information assets while the former fosters the
flow of knowledge assets among partners, customers, suppliers, and other
stakeholders including competitors for innovation pursuits;
4.
Constructing Hybrid Human-Technology KM solutions (not Machine-based KM
solutions) - Human beings are better at
‘knowledge skills’, while machines are more adept at ‘information tasks’.
To fully harness knowledge for innovation, humans and machines must complement
each other.
5.
Fostering
bottom-up knowledge processes (not top-down knowledge processes) – Creative and
useful knowledge works, carried out by knowledge workers, require less top-down
intervention and more bottom-up spontaneity.
6.
Focusing
on Customer Success (not Customer Satisfaction) - Customer satisfaction meets
today's needs only, while a deliberate focus on customer success helps identify
future requirements and unmet needs, which form the competitive forces for firm
growth and business expansion.
6. Knowledge-Sharing
Infrastructures
The driving force behind
the rapid transformation to greater inter-connectivity, accelerated data
transmission and reduced costs of communications is none other than information
and communication technologies (ICT). Of the ICT available at today’s workplace
that have profound impact on KM is that of the Internet and related
technologies – which offers an incredible information source to end-users
without involving an intermediary (Holland and Picard, 1996). Besides,
organisations are also using Intranets for better accessibility in a corporate
environment, as its advantages are similar to those that use the Internet in
external information access and communications. Nevertheless, knowledge sharing
continues to be impeded by a digital divide unless there is a universal access
to ICT in all parts of the world [10].
Currently, the Internet
heralds the way for collaborative sharing of knowledge assets. To implement
knowledge-sharing infrastructures for KI, organisations should provide adequate
support for codifying and storing knowledge, creating knowledge maps (or
corporate directories), sharing best practices, and developing knowledge
networks (Maryam and Leinder, 2001; Davenport and Prusak, 1998). Particularly,
to exploit the Internet, the
characteristics of its knowledge-sharing infrastructures should possess the
following (Barth, 2000; Miller and Morris, 1999;
Strassmann, 1997):
§
Uses a
widely-supported communications standard protocol – which means that it is
universally accessible from multiple locations and through different computer
platforms;
§
Offers
world-wide access, with increasingly more international service providers (ISP)
– which means that individuals, who travel a lot, can use the Internet like a
corporate network without building an in-house option;
§
Avails
end-user software like electronic mail and browsers to be universally
affordable at low cost – which means that it is cost-effective to implement on
an enterprise-wide basis;
§
Employs
a high-speed, broadband, digital network based on optical fibre cables with
limitless bandwidth – which means that it provides quick access at an
reasonable cost;
§
Provides
a quick means of publishing information, through the World Wide Web, that can
be shared globally – which means that the universal repository of information
resources can be updated rapidly and widely shared.
7. Knowledge-Based
Initiatives
Although knowledge-based
initiatives need not necessarily be implemented through the Internet, its
relative ease of use, cost-effectiveness and immediate availability to a global
audience of users in more than 190 countries offer immense advantages. As the
purpose of any knowledge-based initiative is to identify ‘knowledge gems’ from
a ‘sea of information’, the Internet provides an effective means for
enterprise-wide knowledge activities to be accomplished via groupware systems
like Lotus Notes and Intranets. Ultimately, whether a knowledge-based initiative
contributes to innovation depends largely on human imagination and creativity
and the knowledge assets available at a point in time and context (Malhotra,
2000; 1997). Based on a review of current KM practices based on organisations
that host information in the Internet, nine knowledge-based initiatives are
identified to be of considerable significance to knowledge innovation in
products, processes and people (Amidon, 1997; Skyrme and Amidon, 1997;
Davenport, 1996; Skyrme, 1991):
7.1. Products
§
Structuring
and mapping knowledge – such as developing typologies or synthesising different
knowledge types;
§
Developing
knowledge databases – documenting best practices, expert directories, market
intelligence and so on;
§
Embedding
knowledge in new products and services – such as the introduction of smart
products.
7.2. Processes
§
Capturing
and re-using information as knowledge - such as utilising old project
deliverables as source materials;
§
Sharing
of lessons learnt about knowledge processes – such as through distribution,
dissemination or personal interaction;
§
Measuring
and managing the value of knowledge assets – such as attaching an economic
worth to the ownership of patents.
7.3. People
§
Creating
knowledge or intellectual capital teams – such as identifying and auditing
intangible knowledge assets;
§
Forming
people-oriented knowledge centres – such as focal points for developing
knowledge skills and knowledge databases;
§
Using
collaborative technologies for knowledge exchange between people - the
implementation of electronic mail and groupware for multiple-user access.
8. Future
Challenges For Knowledge Innovation
This article has attempted
to integrate the two management areas: KM and IM, into one singular focus to foster
new strategic thinking in KI. It suggests that to manage KI in any
organisation, three strategic aspects of management should be looked into as a
whole. One, organisations should embrace knowledge-centred principles to better
maximise the value of their knowledge capital for innovation. Two,
organisations should implement knowledge-sharing infrastructures through ICT to
better enhance the knowledge assets required for innovation pursuit. Three,
organisations should promote knowledge-based initiatives to better facilitate
the creation of KI. A strategic management framework is proposed for
organisations to better fulfil their roles. But to fully exploit the benefits
of KI, three challenges that merit attention are identified as follows:
Firstly, as KI encompasses the use of
various types of knowledge assets, and social, economic and other forms of
tacit knowledge, the innovation process requires the assimilation of human
imagination, intuition and creativity at different levels. To unleash the
potential of KI, the first challenge is to permeate knowledge-based initiatives
to various layers of society – industrial, organisational and humanistic
structures, which would then enable individuals to utilise knowledge capital to
actively participate in the core activities of KI.
Secondly,
though the objective of KI is to improve organisational performance, it should
not be viewed as the “magic cure” for ailing organisations. Paradoxical as it
may sound, the fewer best KM practices an organisation requires in innovation,
is also a reflection that it has adequately embraced knowledge-centred
principles in its business. The
second challenge posed to organisations is to create new knowledge assets all the time, and
to make them readily available, transparent and freely mobile for individuals
involved in KI.
Thirdly, for KI to flourish, it must be fostered within an enabling environment. Since KI constitutes the ‘discovery of new knowledge assets’, based on competencies and talents inside and outside an organisation, all forms of collaboration between enterprises should be encouraged and valued. The third challenge lies in strengthening the role of all stakeholders in a knowledge enterprise – building a knowledge-oriented culture and nurturing a knowledge-sharing ecosystem. After all, the success of any KI depends on the extent of collaboration amongst individuals who have created the knowledge – the very trait that make knowledge useful, beneficial and valuable to society.
In
conclusion, like any form of innovation, knowledge innovation (KI), too, is
often managed with a business objective in the context of ‘imperfect
conditions’. It must therefore be acknowledged that the ultimate goal of
managing KI effectively is perhaps one for all knowledge workers to strive for,
but never to be completely accomplished. A proposed strategic management
approach to understanding the theoretical perspectives and practical
considerations surrounding knowledge-centred principles, knowledge-sharing
infrastructures and knowledge-based initiatives, to foster knowledge innovation
(KI) stands a far better chance of success.
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About the
Author
Dr. Andrew Goh
is associated with the International Graduate School of Management, Division of
Business & Enterprise, University of South Australia His current research interests lie in knowledge management, innovation
management and business strategy.
He can be
reached at:
Mailing
Address: 38 elite terrace, singapore 458785, republic of singapore
Tel: (065)
9022 4882; Fax: (065) 6444 6901; Email: andrewgoh1@hotmail.com
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