technology management 2a: knowledge management cp beukman engineering management programme...
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TECHNOLOGY TECHNOLOGY MANAGEMENT 2A: MANAGEMENT 2A: KNOWLEDGE KNOWLEDGE MANAGEMENTMANAGEMENT
CP BeukmanCP Beukman
Engineering Management ProgrammeEngineering Management Programme
University of CanterburyUniversity of Canterbury
Issue 2.0 February 2000Issue 2.0 February 2000
ScopeScope
To explain the principles governing To explain the principles governing
the management of knowledge as the management of knowledge as
an intangible asset an intangible asset
The approach taken by Karl Erik The approach taken by Karl Erik
Sveiby will be used.Sveiby will be used.
ObjectivesObjectives
Define knowledge management in Define knowledge management in
terms of market valueterms of market value
Link intangible assets to market valueLink intangible assets to market value
Introduce accounting procedures for Introduce accounting procedures for
knowledge assetsknowledge assets
Philosophical backgroundPhilosophical background
Trust is the bandwidth of communication.Trust is the bandwidth of communication. The difference beteen a company’s market The difference beteen a company’s market
value and book value can be directly value and book value can be directly attributed to its attributed to its intangible assetsintangible assets..
Knowledge grows when shared and used; Knowledge grows when shared and used; unused knowledge deteriorates.unused knowledge deteriorates.
Tapping into customer and employee Tapping into customer and employee knowledge is one of the steps to building a knowledge is one of the steps to building a more successful organisation. more successful organisation.
KE SveibyKE Sveiby
GlossaryGlossary
Individual competenceIndividual competence• capacity to act in a wide variety of situationscapacity to act in a wide variety of situations
External structureExternal structure• customer and supplier relationships and the customer and supplier relationships and the
organisation’s imageorganisation’s image
Intangible assetsIntangible assets• equivalent to intellectual capital and includes equivalent to intellectual capital and includes
assets not (yet) entered into the balance sheetassets not (yet) entered into the balance sheet
Glossary 2Glossary 2 Intellectual capitalIntellectual capital
• knowledge that can be converted to valueknowledge that can be converted to value
• individual intellect, organisational intellectindividual intellect, organisational intellect
Internal structureInternal structure• what we normally call the “organisation”what we normally call the “organisation”
• fuzzy areas = culture, systems, processesfuzzy areas = culture, systems, processes
Invisible assetsInvisible assets• see intangible assetssee intangible assets
Glossary 3Glossary 3
Invisible equityInvisible equity• difference between market value & visible difference between market value & visible
equityequity Knowledge managementKnowledge management
• art of creating value by leveraging art of creating value by leveraging intangible assetsintangible assets
Tacit knowledgeTacit knowledge• informal knowledge that is not made explicitinformal knowledge that is not made explicit• we know more than we can tellwe know more than we can tell
Glossary 4Glossary 4
KnowledgeKnowledge• process-of-knowingprocess-of-knowing• capacity to actcapacity to act• human facultyhuman faculty
Tangible assetsTangible assets• accounting term - able to “touch” assetaccounting term - able to “touch” asset
ValuesValues• knowledge era value created from intelligence knowledge era value created from intelligence
& competence of people & customer relations& competence of people & customer relations
CORE COMPETENCE
&ABILITIES
CREATE
PRODUCTS AND
SERVICES
WHICH THE MARKET BUYS AND PAYS FOR
SELECTIVEFLOW
TECHNOLOGY:SKILL, KNOWLEDGE
(KNOW-HOW)
SELECTIVE FLOW INNOVATION
WHAT DRIVESTHE PROCESS?
= $
CORE COMPETENCE
&ABILITIES
CREATE
PRODUCTS AND
SERVICES
WHICH THE MARKET BUYS AND PAYS FOR
SELECTIVEFLOW
TECHNOLOGY:SKILL, KNOWLEDGE
(KNOW-HOW)
SELECTIVE FLOW INNOVATION
KNOWLEDGE& INTANGIBLES
= $
The New Wealth - intangible The New Wealth - intangible assetsassets
Share values above book valueShare values above book value
How is the price premium above the How is the price premium above the
net book value explained?net book value explained?
Value of intangible assets exceed the Value of intangible assets exceed the
value of tangible assets in many value of tangible assets in many
casescases
Assets Finance
CashCurrent AssetsEquipment
DebtEquity Visible
Equity
Customer CapitalExternal Structure
Structural CapitalInternal structure
Human CapitalIndividualCompetence
Inte
llect
ual C
apita
l
Mar
ket
Val
ue
Assets Finance
CashCurrent AssetsEquipment
DebtEquity Visible
Equity
Customer CapitalExternal Structure
Structural CapitalInternal structure
Human CapitalIndividual Competence
InvisibleEquity
Inte
llect
ual C
apita
l
Mar
ket
Val
ue
Invisible AssetsInvisible Assets
Individuals create external and internal Individuals create external and internal structures to express themselvesstructures to express themselves
ExternalExternal• customer and supplier relationships & imagecustomer and supplier relationships & image
InternalInternal• organisation, culture, IP, brandsorganisation, culture, IP, brands
CompetenceCompetence• education, skills, experience, energy, attitudeeducation, skills, experience, energy, attitude
Market Value
ExternalStructure
InternalStructure
Competenceof
People
Asset Framework
Intangible AssetsShareholders’ Equity
Capital: an Industrial Era Capital: an Industrial Era termterm
External structureExternal structure• in stead of customer capitalin stead of customer capital
Internal structureInternal structure• in stead of structural capitalin stead of structural capital
Individual competenceIndividual competence• in stead of human capitalin stead of human capital
Knowledge is in some Knowledge is in some ways the opposite of ways the opposite of CapitalCapital
Shared knowledge growsShared knowledge grows• you give me a $; I gain $1, you lose $1you give me a $; I gain $1, you lose $1
• shareshare knowledge, we both have it knowledge, we both have it
Unused knowledge deterioratesUnused knowledge deteriorates• use deteriorates tangible assets (car, use deteriorates tangible assets (car,
computer, machine, road, building)computer, machine, road, building)
• skill skill not not used will deteriorate used will deteriorate
Intangibles become a Intangibles become a Determining FactorDetermining Factor
If companies consist of more If companies consist of more
intangibles than tangibles, then the intangibles than tangibles, then the
intangibles will be the determining intangibles will be the determining
factorfactor
Intangible assets Intangible assets
Intangible Assets
ExternalStructure
InternalStructure
Competenceof
People
ImageRelationships
PatentsBrand names
SystemsProcesses
CultureManagement
EducationSkills
ExperienceAttitudeEnergy
Intangible assets in more Intangible assets in more detaildetail
External structureExternal structure• assets like image, relationships with assets like image, relationships with
customers, vendors, and also competitors customers, vendors, and also competitors
and other associations.and other associations.
In short, external structure refers to In short, external structure refers to
assets that depend on relationships assets that depend on relationships
outside the organisation.outside the organisation.
Intangible assets in more Intangible assets in more detaildetail
Internal structureInternal structure• that is the organisationthat is the organisation
• assets like patents and brand names, assets like patents and brand names, manuals, systems, processes, culturemanuals, systems, processes, culture
Managers may be regarded as part of Managers may be regarded as part of internal structure because it is their internal structure because it is their task to maintain and keep it viable.task to maintain and keep it viable.
Intangible assets in more Intangible assets in more detaildetail
CompetenceCompetence• education, skills, experience, energy and education, skills, experience, energy and
attitudesattitudes
Competence may make or break the Competence may make or break the relationships with the customers and relationships with the customers and the products or services provided.the products or services provided.
Knowledge ManagementKnowledge Management
The art of creating value by The art of creating value by leveraging intangible assets.leveraging intangible assets.
Need for a different paradigm to Need for a different paradigm to that of the industrial era:that of the industrial era:• one must be able to visualise the one must be able to visualise the
organisation as consisting of nothing organisation as consisting of nothing but knowledge and knowledge flows.but knowledge and knowledge flows.
Value: Industrial vs. Value: Industrial vs. KnowledgeKnowledge
Industrial era factory created value from Industrial era factory created value from
physical goods, moving them from physical goods, moving them from
supplier into the factory and out to supplier into the factory and out to
customers.customers.
Value is created by Value is created by adding resourcesadding resources like like
labour, energy to inputs.labour, energy to inputs.
Value: Industrial vs. Value: Industrial vs. KnowledgeKnowledge
Knowledge era companies add Knowledge era companies add
value not from the physical value not from the physical
resources, but from the resources, but from the
intelligence and competenceintelligence and competence of of
people producing outputs, as well people producing outputs, as well
as their relationships with their as their relationships with their
customers. customers.
Managing Intangible Managing Intangible AssetsAssets
Need to identify which areas can Need to identify which areas can
yield the highest return for the yield the highest return for the
organisation.organisation.
Assets and FlowsAssets and Flows
Two options to effectively leverage Two options to effectively leverage
assets:assets:
• increase each asset by working with the increase each asset by working with the
asset itselfasset itself
• increase each asset by usingincrease each asset by using flows flows from from
other assetsother assets
Work with Assets Work with Assets ThemselvesThemselves
Each one of these assets must be Each one of these assets must be
managed differently in order to managed differently in order to
create the best possible value from create the best possible value from
them.them.
Work with Assets Work with Assets Themselves 2Themselves 2
Management of an individual’s Management of an individual’s
competence means creating competence means creating
environments conducive to creativity, environments conducive to creativity,
learning and knowledge creation.learning and knowledge creation.
These activities are traditionally the These activities are traditionally the
realm of HR departments.realm of HR departments.
Work with Assets Work with Assets Themselves 3Themselves 3
Managing the external structure means Managing the external structure means
improving the relationships with improving the relationships with
customers, suppliers and other customers, suppliers and other
stakeholders outside the organisation.stakeholders outside the organisation.
This is traditionally the task of This is traditionally the task of
marketing, PR and sales departments.marketing, PR and sales departments.
Knowledge Flows and Knowledge Flows and External StructureExternal Structure
How can relationships with external How can relationships with external
customers be improved?customers be improved?
Some customers can bring in new ideas.Some customers can bring in new ideas.
Other customers are valuable to have in Other customers are valuable to have in
terms of image.terms of image.
Cusomer endorsement/reference.Cusomer endorsement/reference.
Knowledge Flow & Internal Knowledge Flow & Internal StructureStructure
IT system creates flow from individual IT system creates flow from individual
competencecompetence
Capturing Capturing tacit knowledgetacit knowledge into a system into a system
so that others may benefit from it.so that others may benefit from it.
Capture Capture customer data customer data to support to support
dialogue with customers.dialogue with customers.
The Office: A Factory for The Office: A Factory for Production or a Space for Production or a Space for creationcreation
Office space - isolated or connected?Office space - isolated or connected?
Knowledge flowKnowledge flow
Internal control systems such as Internal control systems such as
measurement MIS are important in measurement MIS are important in
encouraging/preventing knowledge encouraging/preventing knowledge
creation/flowcreation/flow
Rand Corporation example.Rand Corporation example.
Knowledge Flows and Knowledge Flows and Individual CompetenceIndividual Competence
Employees learn from each otherEmployees learn from each other Employees learn from customersEmployees learn from customers
Internal structure can support or hinder Internal structure can support or hinder flowflow• MIS, reward systemsMIS, reward systems
TRUST IS THE BANDWIDTH OF TRUST IS THE BANDWIDTH OF COMMUNICATIONCOMMUNICATION
Knowledge Flows & Individual Competence
ExternalStructure
Individual’s Competencies
InternalStructure
Trust is the Bandwidth of Trust is the Bandwidth of CommunicationCommunication
Investing in improving the level of Investing in improving the level of
trust in an organisation may trust in an organisation may
dramatically increase the dramatically increase the
knowledge flows, and is probably knowledge flows, and is probably
much more profitable than spending much more profitable than spending
the same amount on an IT system.the same amount on an IT system.
More on Asset More on Asset ManagementManagement
Managing the internal structure means Managing the internal structure means
improving the organisation so that the improving the organisation so that the
core staff know people who are working core staff know people who are working
directly working with customers.directly working with customers.
• ITIT• HRHR• AdministrationAdministration
Leveraging AssetsLeveraging Assets
The real knowledge management The real knowledge management
challenge is to leverage all assets challenge is to leverage all assets
so they all work together to so they all work together to
maximise results for customers.maximise results for customers.
Six most common strategies:Six most common strategies:
Knowledge Management Knowledge Management StrategiesStrategies
1.1. Transfer of information & best practices Transfer of information & best practices
2. Capture data about customers2. Capture data about customers
3. Leverage R&D into several applications3. Leverage R&D into several applications
4. Create more value from existing4. Create more value from existing
intellectual assetsintellectual assets
5.5. Create strategy focused on individuals’ Create strategy focused on individuals’
innovation & knowledge creationinnovation & knowledge creation
6.6. Commit to a “Knowledge Focused Commit to a “Knowledge Focused
Strategy”Strategy”
KM Strategies
ExternalStructure
Individual’s Competencies
InternalStructure
1. Transfer of tacit knowledge into information
3. Leverage R&D
2. Capture customerdata
KM Strategies
ExternalStructure
Individual’s Competencies
InternalStructure
5. Create a strategy based on individuals’ innovation
6. Knowledge based strategy
4. Create value from existing intellectual assets
1. Transfer of Information 1. Transfer of Information & best practices via IT & best practices via IT SystemsSystems
Invest in IT systems for capturing Invest in IT systems for capturing
an individual employee’s tacit an individual employee’s tacit
knowledge into softwareknowledge into software
• best practice databasebest practice database
• analytical modelsanalytical models
• built-in maintenance diagnosticsbuilt-in maintenance diagnostics
2. Capture data about 2. Capture data about customerscustomers
Invest in IT systems for capturing Invest in IT systems for capturing customer data or competitive customer data or competitive intelligence and building new networksintelligence and building new networks
• market information databasemarket information database
• FAQ databasesFAQ databases
• customer profilescustomer profiles
• sales support systemssales support systems
3. Leverage R&D into 3. Leverage R&D into several applicationsseveral applications
Find more than one application for Find more than one application for
the R&D knowledge, skills & the R&D knowledge, skills &
competencecompetence
• 3M example - R&D projects serve 3M example - R&D projects serve
different applications different applications
4. Create more value 4. Create more value from existing intellectual from existing intellectual assetsassets
Create more value out of existing Create more value out of existing
patentspatents
Sell processes to other companiesSell processes to other companies
Create value from internal structuresCreate value from internal structures
• Skandia sells back-office systemsSkandia sells back-office systems
5. Create strategy focused 5. Create strategy focused on individuals’ innovation & on individuals’ innovation & knowledgeknowledge
Adopt a strategy that focuses on an Adopt a strategy that focuses on an individual’s innovation & knowledge individual’s innovation & knowledge creationcreation
• professional services partnershipsprofessional services partnerships
# This aspect will later be addressed as # This aspect will later be addressed as “Unconventional Wisdom”“Unconventional Wisdom”
6. Commit to a “Knowledge 6. Commit to a “Knowledge Focused Strategy”Focused Strategy”
Leverage all intangible assetsLeverage all intangible assets
• customer (external)customer (external)
• processes (internal)processes (internal)
• individual capabilityindividual capability
What is missing?What is missing?
What about our customers?What about our customers?
Two areas not addressed:Two areas not addressed:1. Our customers1. Our customers
2. What our customers can do for us2. What our customers can do for us
To what extent can flow from customers To what extent can flow from customers to our people or internal structure be to our people or internal structure be used?used?
What is missing?What is missing?
““Intangible revenues”Intangible revenues” must be must be used.used.
Knowledge Focused StrategyMcKinsey & Co
ExternalStructure
Individual’s Competencies
InternalStructureIndustry data leveraged
to many clients
* Develop own concepts* Information on all projects collected & shared* Internal job rotation
* Collaborative culture “one firm”* Partner ownership* Cultural indoctrination
Knowledge Focused StrategyMcKinsey & Co
ExternalStructure
Individual’s Competencies
InternalStructure
* Focus on high image clients* Close relations with selected clients* Nurture relationships with universities
* Former employees alumni* Publicise concepts* Big assignments by teams
Knowledge Focused StrategyMcKinsey & Co
ExternalStructure
Individual’s Competencies
InternalStructure
* Give founded advice to clients based on own concepts* “Clients 1st, Firm 2nd”
* Recruit bright young highly educated people* “Up or Out” Career* Juniors in teams with seniors
Questions - Questions - Customer Customer AssetAsset
How can we better utilise those How can we better utilise those
customers that actively endorse our customers that actively endorse our
products/services?products/services?
What kind of projects can we create What kind of projects can we create
that will allow our staff to learn that will allow our staff to learn
more from our customers? more from our customers?
Questions - Questions - Individuals’ Individuals’ CompetenceCompetence
How can we leverage the skill of How can we leverage the skill of
“Masters” to improve the skills of “Masters” to improve the skills of
“Juniors”?“Juniors”?
How can we capture the skills of How can we capture the skills of
Masters into software?Masters into software?
Questions - Questions - Internal Internal StructureStructure
How can we create an office space How can we create an office space
that supports sharing of tacit that supports sharing of tacit
knowledge?knowledge?
How can our existing unique How can our existing unique
knowledge be used in other knowledge be used in other
products/services?products/services?
Handy WebsitesHandy Websites
Bright Future MoRST NZBright Future MoRST NZ• http://www.morst.govt.nz/bright/http://www.morst.govt.nz/bright/
index.htmindex.htm
Karl Erik SveibyKarl Erik Sveiby• http://www.knowledgecreators.com/http://www.knowledgecreators.com/
km/keskm/kes