Summarizing all this into one reporting format led to the emergence of the Skandia

Navigator as another language of dynamic reporting which can “balance” the

financial and non-financial issues, past and current performance. It has similarities
with the balanced score card allowing the development of numerical indicators.
Navigator is used increasingly as a planning and follow-up tool ; in the future it
may be applied at corporate level. Given the information it contains, the
management will now have a more comprehensive appreciation of the
organization’s value potential.
Though human capital may not be the major organizational asset compared with
structural capital, it is the most dynamic. The challenge is to manage the process of
developing intellectual capital so that the value creation capabilities can be
enhanced. Intellectual capital management can, in fact, provide a number ofbenefits
such as a steeper learning curve, shortened lead times, cost savings and new values
creation. It must be remembered that intellectual capital is a relationship issue, a
renewable resource which needs monitoring. Once that is realized, new thinking
will be possible on leadership, on the role of finance and on value creation and
extraction. This will ensure a new focus on core skills based on innovation-and a
new interpretation of the structure and organization of society.

Understanding Knowledge Management

Marc Demarest

Knowledge is the key to effective competition. The challenge for companies

requiring participation in knowledge-intensive sectors of the global company is to
organize themselves so that they can recognize that, for example, commercial
knowledge is different in kind from philosophical and scientific knowledge. The
aim is effective performance, not eternal truths since commerce is about the
transitory. All commercial knowledge is social and is traded. In fact all companies
have knowledge economies working within the organisation.
There are four stages-discerning knowledge, choosing a container,
dissemination and the use made of the knowledge. Understanding how the stages
operate in the company is essential to the successful knowledge management
process. In addition, to be successful the process has to be explicitly supported,
managed and measured. Knowledge actually comprises multiple networks or nodes
of knowledge linked together. The four categories of knowledge are imperative or
cultural, predictive or having a pattern, bound by rules and prescriptions for
performance. All are tacit or shared, embodied in “raw” materials, mechanisms,
business practices and processes and environment and culture, and will move from
softer to harder forms of embodiment. To be useful, knowledge must be distributed;
only that way can it increase company performance in the market place.
Knowledge management is the systematic underpinning, observatism,
measurement and optimization of the company’s knowledge economies. All
knowledge management programmes need to be focused on the income statement;
how this is achieved will depend on the specific company culture, structure and
aims. Commercial knowledge is useful only in proportion to its productivity in real
commerce. Knowledge management is to an extent an issue of perception. It
nonetheless requires an infrastructure-cultural, operational and technical. A Chief
Knowledge Officer needs to be appointed to manage the company’s knowledge
assets in much the same way as the CFO manages its capital.
Innovation begins, as shown by 3M’s Post-It Note, with the construction of a new
kind of knowledge within the firm. But the need is for repeated innovation with
increasingly high levels of re-use. Business process re-engineering is a necessary
precursor to innovation. This means that time-to-market and time-to-decide are the
two most critical time metrics today. Too often the end of the process has been
managed alone ; it is now necessary to manage the front-end, market identification ;
product and service design. Knowledge management has a crucial role in this.

Long Range Planning Vol. 30 June 1997

 Without a formal system it is not possible to manage this process. It is therefore
vital that companies which need an “unfair” share of knowledge workers offer a
working environment amenable to those prospective employees. Otherwise they
will not achieve the re-use levels required and lose market share to competition.
Knowledge management systems capture rationale and mean that commercial
success can be achieved.

Knowledge Management : a Strategic Agenda

Paul Quintas, Paul Lefrere and Geoff Jones

Knowledge can be seen as a key source of advantage. Its importance has been
recognized for a long time. Some scholars have realized that information can create
wealth. What is happening today is that there has been a qualitative change in the
way in which vast amounts of data can be collected and communicated. The risk is
of information overload. To help avoid this, a discipline is needed which can
distinguish between data and knowledge, can find ways to reduce the overload and
can organize itself.
At present, little consideration is given to whether and how individuals and
organizations can manage knowledge. Knowledge management is a process of
continually managing knowledge of all kinds and requires a company-wide strategy
which comprises policy, implementation, monitoring and evaluation. Such a policy
should ensure that knowledge is available when and where needed and can be
acquired from external as well an internal sources. Activities such as these have
management implications at all organizational levels and functions ; thus culture,
people, process and technology have all to be considered. In this, the fact that much
information that is used is not in computers but in heads needs to be recognized.
Indeed, companies are now aware that traditional database structures can hold only
a fraction of what is available. This in turn leads to increased emphasis on
information and communication technologies (ICTs) and the need to realize that to
be accessible information has to be organised in the same way as the human brain.
This is very important in the case of collecting tacit knowledge. In addition,
organizations have to solve the “boundary paradox”, in other words, they must be
open to receive information on both an informal and formal basis from the outside.
It is difficult, of course, to find solutions and processes which are completely outside
individual experience. To be successful, it is necessary to recognize that knowledge
is a process or set of relationships.
Knowledge can be seen as a product of power relations. Knowledge management
comprises information, communication, human resources, intellectual capital,
brands etc. It involves facing a number of challenges such as its usefulness, its
transfer to others and its quantity. It is necessary to develop an organizational
capability which may be costly. It does not mean managing all that is known. It
does mean formulating and implementing strategies, improving business processes
and monitoring and evaluating what knowledge exists, and its effective
management. It is important yet difficult to scope, define and understand the
processes, but to do so is necessary if organizations are going to be able to cope.

Assessing your Company’s Knowledge

Management Style
Judith Jordan and Penelope Jones

As a reaction to an increasingly volatile external environment, many companies

now base strategy on their core competencies. This has emphasized the importance

Executive Summaries
Understanding Knowledge
Management
Marc Dem ares t

T HE RECENT RASH OF ASSERTIONS that knowledge is-

somehow or other-the key to effective competition,
marketplace distinction and profitability in the global
post-capitalist economy serves to underscore the
extent to which the average firm is unsuited for this
new economy, in three critical ways.
If it is the case that effective management of any
firm’s marketplace performance is based primarily
on:

a shared, more-or-less stylized notion of how value

is created, maintained and distributed within the
firm and shared with upstream, sidestream and
downstream elements of the value chain within
which the firm participates;

a set of processes and systems-technical or

human-that support and help channel the firm’s
value creating activities along the lines suggested
by the shared, stylized model;

a set of key metrics that link the value-creation

process within the firm to more-or-less objective
measures of the firm’s success (stock price growth,
P/E ratios, customer satisfaction indices and market
share measurements);

a set of command-and-control systems*-knowl-

edge management infrastructure-that monitor the

*We like to denigrate the whole notion of command-and-control

systems as being anti-empowerment and therefore politically incor-
rect, not to say destructive of the core values that are alleged to make
for competitive advantage in the New Economy. The fact of the
matter is that, so long as the Securities and Exchange Commission,
the Internal Revenue Service and shareholders exist, command-and-
efficiency and effectiveness of that value creation
control systems have a valuable role to play in the operation of the process, indicate opportunities for performance
firm. improvements and generally signal the relative rise

Pergamon Long Range Planning, Vol. 30, No. 3, pp. 374 to 384, 1997
PII: s0024-6301[97)000174 0 1997 Elsevier Science Ltd. All rights reserved
Printed in Great Britain
0024-6301197 $17.00+0.00
 or decline in value-creation at various points “On those remote pages it is written that animals are divided
into (a) those that belong to the Emperor, (b) embalmed ones, (c)
within the firm;
those that are trained, (d) suckling pigs, (e) mermaids, (f) fabu-
then the ‘knowledge problem’ for the typical firm is lous ones, (g) stray dogs, (h) those that are included in this
this: classification, (I) those that tremble as if they were mad, (j)
innumerable ones, (k) those drawn with a very fine camel’s hair
there is no commonly-held model for knowledge brush, (1) others, (m) those that have just broken a flower vase,
creation and dissemination within the firm; (n) those that resemble flies from a distance.”

there are no processes or systems focused on sup- Borges is ostensibly quoting a Chinese encyclo-
porting these activities: pedia that Wilkins found fascinating, pointing out
that knowledge comes to us in many forms, some of
there are no metrics for evaluating the role or effec- which we are not able to assimilate because of our
tiveness of knowledge-creation and knowledge- own assumptions about what knowledge is, and how
dissemination activities; it is systematized. The example above strikes us as
there are no command-and-control systems focused fantastic because (a) it lacks internal symmetry and
on measuring and evaluating the various knowl- balance and (b) the grid of distinctions it draws do
edge-creation and dissemination processes in the not correspond to the categories we habitually
firm. manipulate in our daily lives.
Yet, it reflects a kind of knowledge that was pre-
The challenge, for a firm whose strategy requires
sumably productive for Chinese court philosophers:
effective participation in knowledge-intensive sec-
presumably, it worked for whatever purpose it was
tors of the global economy, is embodied in the answer
developed and used. This is the essential nature of
to six key questions:
knowledge, as we have to deal with it commercially:
0 What does our culture and our actions as good commercial knowledge, valuable knowledge, is
managers say about the value of knowledge in the knowledge that works.’ Its truth value is incidental to
firm, and what do we ourselves believe about the its ability to generate desirable commercial per-
value, purpose and role of knowledge? formances,
cl How is knowledge created, embodied, dis- Commercial knowledge, I would argue, is different
seminated and used in this firm, and what is the in kind, not degree, from philosophical and scientific
relationship between knowledge and the inno- knowledge. Scientific knowledge as the paradigmatic
vations and performance this firm requires to suc- form of all knowledge is conventional-as academics
ceed in its strategic objectives? are fond of saying, all disciplines aspire to be
physics-and very wrong in this case. Similarly,
0 What strategic and material commercial benefits philosophical knowledge, under assault from post-
do we expect to gain from more effective knowl- structuralist disciplines that argue that truth is
edge management and the performances created embedded in language and therefore inaccessible,
by effective knowledge management? can’t show us commercial truth, as if understanding
0 Where is our firm in terms of the maturity of its the essence of commerce would help us win in a
knowledge systems? marketplace that is more than half a collectivity of
perceptions.
Cl How must we organize for knowledge man-
The goal of commercial knowledge is not truth, but
agement?
effective performance: not ‘what is right’ but ‘what
0 What role does information technology play in our works’ or even ‘what works better’ where better is
knowledge management program? defined in competitive and financial contexts. Partial,
or even empirically incorrect or philosophically mud-
dled, bodies of knowledge have been and are effec-
Commercial Knowledge: what is it, tive. The Ptolemaic universe worked. Classical
mechanics works. Aristotle’s notion of spontaneous
Exactly? generation-the theory that suggests that piles of
Jorge Luis Borges’ essay “The Analytical Language of grain, burlap, dark corners and damp earth breed
John Wilkins”’ contains a passage that has often been rats-works if what you are trying to do is (a) increase
qrroted in discussions about the nature of knowledge. rat populations or (b) exterminate rats.
The salient passage reads in part: Commerce is about the provisional: about rules-of-
thumb, swags, and truths that are highly productive
and then become unproductive overnight.
*Commercial knowledge is very close to what the French call All commercial knowledge is provisional, partial,
&co&e: the provisional construction of a messy set of rules, tools
and guidelines that produce according to the expertise and sen-
muddled-and, when it is good, it works.*
sitivity of the craftsman, not the empirical accuracy of the rules, Some other attributes of commercial knowledge
tools and guidelines. that are counter-intuitive but broadly accurate:

Long Range Planning Vol. 39 June 1997

 ( 376

Embodiment refers to the process of choosing a

container for knowledge once it is constructed.
The container for much of the firm’s knowledge is
selected by the intelligent desktop, and that con-
tainer is most often a document.

Dissemination refers to the human processes and

technical infrastructure that make embodied
knowledge-in this case, documents-available to
the people within the firm who use the documents
and the bodies of knowledge those documents
contain to perform: to do work for customers, sup-
pliers, business partners and the firm itself.

Use refers to the ultimate objective of any knowl-

edge management system: the production of com-
mercial value for the customer.

Intuitively, this is how knowledge gets produced

within any firm, and all participants recognize the
model as essentially accurate. The fact that this model
is detected by researchers into organizational inno-
vation only underscores its essential accuracy.
It is worth noting that the model assumes a certain
amount of simultaneity, along a number of vectors:

All commercial knowledge is social: produced 1. Construction-to-use: the constructor, and fre-
and shared among a network of human and non- quently other members of the constructor’s circle,
human actors within the firm (and increasingly typically put knowledge into practice while it is
across the firm’s boundaries). being constructed;

All commercial knowledge is traded, by knowl- 2. Construction-to-dissemination: in a properly func-

edge workers, in knowledge economies that are tioning knowledge management environment,
today operating within every knowledge intensive constructed knowledge is disseminated in a less-
firm in the world. What is traded for is either other than-embodied form for testing, validation and cri-
different kinds of knowledge, or status within the tique (testing-for-use-value, or what we know as
knowledge worker guild within the firm. ‘review cycles’);

3. Construction-through-embodiment-through-
dissemination-through-use: the more formal pro-
Modeling Knowledge Economies cess is ideally executed only after (1) and (2) above
Within the Firm (that is, after both the constructor and a small net-
work of others have performed testing-for-use-
I would suggest that: value)
all firms have knowledge economies operating Understanding how these processes function in an
within them already; and organizational unit (of whatever size), making infor-
all firms’ knowledge economies operate in suf- med decisions about the optimal methods for each
ficiently similar ways to justify generalizations process (as well as vehicles for embodiment and dis-
about how knowledge is produced and consumed semination), and finally determining a minimal, opti-
in commercial firms. mally effective set of measurements for the entire
constellation of processes are a key-if not the key-
Schematically, the knowledge economy within a firm aspect of successful knowledge management.
looks something like Figure 1.
In the context of this model, and the generic com-
mercial knowledge economy:
Knowledge Management: Some
0 Construction refers to, in this case, the process of
Definitions
discovering or structuring a kind of knowledge:
how to sell a particular product to a particular A Definition of Commercial Knowledge
market, for example, or how to diagnose a par- Commercial knowledge, for our purposes, should be
ticular kind of customer problem. thought of as:

Understanding Knowledge Management

 an explicitly developed and managed network of imperatives, networks, and discipline, a term for any single
patterns, rules and scripts, embodied in some aspect of the firm,
network.
and distributed throughout the firm, that creates marketplace
performances. I would argue that generically the knowledge cre-
ated in commercial firms falls into four categories:
Explicitly Developed and Managed 1. Imperatives: behavioral directives that are unchal-
It would be possible to argue that all firms produce
lenged because they are derived from the firm’s
and use significant knowledge, whether they know it
dogma-its strategy, goals and operating plans.
or not, and that therefore explicit development and
This is one area in which commercial knowledge
management of knowledge are irrelevant: knowledge differs substantially from other kinds of knowl-
will get created, one way or another.
edge. Where, for example, biology rests on certain
This is true-but the issue is not ultimately whether
fundamental postulates that are at least indirectly
knowledge gets constructed or not. In some sense, the demonstrable and therefore ‘true’, commercial
construction of knowledge is encoded in our genes
knowledge may in some cases rest on empirically
and mandated by our environment; we must at some
untenable, even ‘wrong’ imperatives that are
level get smart or die. expressions of the firm’s overweening need to pen-
The issue is that firms do not value what they do
etrate a new market, recapture competitive dis-
not: tinction, achieve a certain product gross margin or
?? explicitly support with business processes; merely survive. Science cannot use ‘must’; com-
mercial firms do so all the time.
?? explicitly manage with people and systems;
0 explicitly measure. 2. Patterns: predictive models that have a certain lon-
gevity, durability and level of universality. Pat-
The test of a knowledge management system is ulti- terns describe the likely shape of scenes that call
mately whether it is a by-product of the firm’s oper- for particular kinds of knowledge, as in: if the cus-
ations, or an explicit objective of those operations. I tomer has never called with a product complaint
would argue that, very soon now, any firm that treats before, you can expect the following kinds of
knowledge as a fortuitous by-product of its operations behavior.. . Patterns also exhibit themselves as
(treating knowledge in effect as a happy effluvium of usage models (how customers make use of prod-
doing), rather than an objective of those operations, ucts or services), buying or procurement behavior,
will be out of business, not because it could not con- social styles, and so forth. In general, they are gen-
struct knowledge, but because it could not deliver eralized, stylized models of behavioral contexts in
the knowledge created to the marketplace in terms of which a kind of knowledge is to be practised or
market-valued performances. deployed.

A Network of Imperatives, Patterns, Rules and 3. Rules: algorithms and heuristic logic models that
Scripts define a basic set of guidelines for performing in
Knowledge is actually knowledges: plural, multiple particular environments. These rules may be algo-
networks of knowledge. By network, I mean some- rithmic (that is to say, open to only one interpret-
thing very specific: the idea that ‘nodes’ of knowledge ation and susceptible to coding in one form or
(each node an imperative, pattern, rule or script) are another) or they may be fuzzy; that is, they deal
held together by ‘links’ that create specific relation- with qualitative evaluations and categories of lan-
ships among those nodes: subordination, agreement, guage, and they are incomplete and require inven-
contradiction, ambivalence, or what have you. Both tiveness on the part of the performer. A model for
MindMapping” and fuzzy cognitive models (FCMs) conducting a BPR workshop constitutes a set of
are attempts to visually describe the ways in which rules, as does a manual describing the admin-
knowledge actually forms itself: as networks. istration tasks associated with the diagnosis of a
Many firms are simultaneously supporting net- computer system, or a set of guidelines for sal-
works of knowledge at odds with one another in one esmen on how to talk to CEOs based on the position
or more ways. This is the origin of organizational of their firms in their chosen markets. It was this
issues like the failed installation of strategies and particular kind of knowledge that early Artificial
directives, the maintenance and pursuit of emergent Intelligence proponents sought to capture in so-
strategies at odds with the firm’s formal strategy, and called ‘knowledge bases’ or expert systems: the
various kinds of cultural malaise and toxicity. rules that, for example, allow senior factory hands
We might do well to distinguish between knowl- to diagnose a piece of machinery on the factory
edge, as a general term describing all of these floor by smell, sound or the relative position of a
dozen dials, or the skills that allow the firm’s best
salespeople to determine with great accuracy dur-
*A popular form of note-taking much used in the United Kingdom. ing the first sales call whether the prospect will

Long Range Planning Vol. 30 June 1997

 ultimately do business with the firm or not. Rules opment of products or services, and the value that
often do not stand up to empirical scrutiny, it adds to the finished product or service is typi-
because they are often based on collective or indi- cally the basis for the value proposition for that
vidual experience, and therefore seem intuitive or product or service. Consulting firms routinely use
even supra-rational. information as raw materials. These products may
be internal artifacts (that is to say, used only within
4. Scripts: scripts are more than rules: they are pre-
the firm itself) or actual components of the product
scriptions for performance. Scripts are most often
or service sold to the firm’s customers.
found as recipes, post-mortem examinations, so-
called ‘success stories’ or case studies, specific 2. Machinery and mechanisms: knowledge is
diagnostic tools, skills training (as is the case most embodied in ‘hard’ machinery or mechanisms that
obviously with sales training), or methodologies. change the way the firm’s electromechanical infra-
The salient difference between rules and scripts is structure operates.
that rules sometimes exist in isolation from one
3. Business practices and processes: knowledge is
another as general postulates-‘if the customer
embodied in ‘firm’ business processes or practices
objects to this point, you will not close the sale’-
that change the way the firm’s sociotechnical infra-
where scripts are coordinated sets of rules targeted
structure operates.
at particular contexts. Scripts give way, in the prac-
tice of any knowledge worker, to the employment 4. Environment and culture: knowledge is embodied
of heuristics; scripts are, if you like, the raw in ‘soft’ cultural or organizational values (‘open
material of the apprentice knowledge worker, door’ policies, for example) that change the way
structuring behavior until the knowledge worker the firm’s cultural infrastructure works.
can be self-structuring.
It is possible to think of embodiment in a different
way, as a state of knowledge packaging (or codi-
Embodied in some Aspect of the Firm
fication) along a hard-soft continuum. For example,
Generically, commercial knowledge is either tacit,
knowledge of the appropriate way to handle a par-
shared or embodied.
ticular kind of inbound customer call in a call center
Tacit knowledge is held by a single individual, in
environment may, once it is no longer tacit or shared
the silence of her contemplation or in her particular
and becomes embodied, appear as something as soft
performances: ‘top performers’ in firms are more often
as a talk given at a call center conference, as a research
than not people holding highly productive tacit
paper published in the proceedings of that confer-
knowledge. There is some reason to assert that tacit
ence, as an informal script shared among customer
knowledge is not knowledge at all, that knowledge
support representatives, as a formal element of the
exists only within a practicing network, and that,
call center’s process repertoire, or as a call script
whatever is held in the heads of ‘really smart people’,
embedded in the call center’s information technology
it isn’t knowledge, precisely because it is closely held.
infrastructure. Each embodiment is increasingly
Shared knowledge is held by a group or team, either
hard-durable and inflexible, long-lived and (increas-
consciously or in their particular group and indi-
ingly) impervious to change or re-use. It is tempting
vidual performances; ‘high-performance teams’ like
to speculate that:
top individual performers, are typically using shared
knowledge to boost their perceived performance rela- ?? knowledge moves, over time, from softer to harder
tive to other teams in their organizations or elsewhere. forms of embodiment, as a general rule of its
Both tacit and shared knowledge are unembodied: behavior; and
floating, held in memory or in the day-to-day business
?? harder forms are more appropriate to older, com-
practices of a small number of people but not formally
modifying kinds of knowledge.
encoded or available for dissemination or
emulation.*
Distributed Throughout the Firm
When knowledge is embodied-made formal,
explicit and distributable-it is typically embodied For knowledge to translate into some kind of useful
in one of four kinds of things: commercial performance, it must be distributed from
the locale of construction into other parts of an organ-
1. Raw materials, products and services: knowledge ization or value chain-ideally to the points in the
is explicitly used as a component in the devel- organization where performance is possible (per-
formances are not equally possible in all locales,
although we could wish it to be so). In some cases,
*This, I would argue, is why attempts to ‘clone’ the work processes
embodiment is a prelude to distribution to customers
and behaviors of notable high-performance teams and distribute
them to other teams within an organization so often fail-the high-
(the classic case being the preparation and printing of
performance team is (tacitly or otherwise) holding special knowl- technical documentation), while in other cases
edge, and resists its embodiment and distribution. embodiment (for example in internal training

Understanding Knowledge Management

materials or a slide presentation) is the prelude to
internal distribution within an actor in the value
chain.

Creating Marketplace Performances

As mentioned in the previous section, the only
reasonable purpose of an organized knowledge man-
agement practice in the firm is to increase the quality
and quantity of marketplace performances: to enable
the firm to sell more and sell better, to support more
and support better, to create and keep more, better,
customers. A firm’s accumulation of knowledge-par-
ticularly under today’s models, where for the most
part that knowledge remains tacit, unembodied and
undistributed-may ultimately serve some economic
good, in terms of making the firm a more desirable
acquisition target, or creating a highly-desirable
working environment, but the cases of Bellcore, Xerox
PARC* and other ‘think tanks’ seems to indicate pre-
tty clearly that this kind of knowledge management
does not lead to marketplace performance at all, let
alone to dominating marketplace performances that
parlay knowledge into revenue or defensible market
position.
This implies that the only top-level metrics for a
knowledge management system which ultimately
matter are economic ones: market share, revenue,
gross margin, concept-to-cash-flow cycle time, cus-
tomer satisfaction and other commercial success met-
rics. Other metrics-concerned with the productivity
and efficiency of the knowledge management process
itself-have value to knowledge workers and knowl-
edge managers, but an optimally efficient, high- What is Knowledge Management?
volume knowledge system that does not lead to dom- In a preliminary way, let me suggest that knowledge
inating market performances has no ultimate value to management is the systematic:
the firm. ?? underpinning,
?? observation,
Commercial Knowledge ?? instrumentation, and
Management ?? optimization
Given this definition of commercial knowledge, a pro- of the firm’s knowledge economies (see Figure 2).
cess model for commercial knowledge management These activities-or perhaps process areas-are
would seem straightforward. But it isn’t, in my experi- sequential. That is to say, it is not possible to optimize
ence at least. a firm’s knowledge economies until they are instru-
mented; instrumentation is selective measurement
based on empirical observation, and observation of
*PARC’s knowledge leadership in graphical user interfaces, the for-the-most-part underground knowledge econ-
human factors design and object-oriented systems are all compelling omies within the firm requires that these economies
examples of this phenomenon. If it is true that nearly every
be brought out into the light of day, made official, and
pathbreaking technology goes through three phases-innovation,
popularization and dominance-and if it is true that money is made
formally underpinned with technology, process and
only when the technology penetrates the marketspace in a significant policy that makes construction, embodiment, dis-
way then PARC can lay claim to being the innovator in all of these semination and use of knowledge officially-sanc-
technology areas, but can lay no claim to being the popularizer or tioned and formally-valued activities within the firm.
the firm that benefitted from the dominance of any of these tech- This definition suggests what knowledge man-
nologies. By contrast, 3M has discovered a way of doing business
that allows them both to innovate and to cash in, but-if publicly-
agement might be, or more precisely what people who
available case studies are to be believed-still relies on serendipity call themselves knowledge managers might do. What
for innovation. it does not provide is:

Long Range Planning Vol. 30 June 1997

 any clear sense of what objectives knowledge man- CI When do we scrap them in favor of newer knowl-
agers have in view when they begin the process of edges?
underpinning, observing, instrumenting and opti-
In short, commercial knowledge is valuable in pro-
mizing their firm’s knowledge economies; or
portion to its productivity in commercial settings:
any formal definition of the limits to effective ultimately, in how much leverage knowledge offers
knowledge management within each phase, the us in creating or enhancing customer relationships
dangers inherent in the tasks at hand, or the com- and their associated revenue streams, in achieving
plexities associated with design and implemen- operational efficiencies (through outright cost
tation decisions and trade-offs. reductions or process refinements), and in creating
the optimal products and services for markets we
The first problem-lack of a clear sense of objectives-
serve.
is resolved, at least conceptually, with ease: all
This doesn’t mean we don’t need a theory of com-
knowledge management programs ought to be
mercial knowledge-we do. Since the fact is that most
targeted directly at the firm’s income statement: at
firms have no idea how knowledge enters, is trans-
revenue enhancement, cost reduction, or the man-
formed within, or exits the firm, any theory-again,
agement of risk associated with marketplace and fin-
no matter how empirically inaccurate-is valuable,
ancial performance. In practice, this is a difficult task,
since it:
implying a thorough understanding of the firm’s
internal value chain and the value systems in which ?? gives knowledge managers a model for under-
it participates, and further implying a formal under- standing what would otherwise be impenetrable
standing, at a strategic level within the firm, of the chaos;
role knowledge plays in the firm’s quest to add value. *
?? givesknowledge workers a model and a vocabulary
The second problem cannot, I would argue, be
for understanding their roles within the knowledge
resolved at all except generally without a specific
system of the firm.
firm’s problems against which to apply the general
model and definition. Ultimately, all knowledge man- In other words, knowledge management is to some
agement programs and problems are local: unique to extent a problem in self-reflexivity-the thing we are
a particular firm and its knowledge economies. describing does not exist until we describe it, at which
point it will probably take on exactly the process attri-
How to Do It? butes we ascribe to it, and then, instantaneously,
So, the problem for commercial knowledge man- begin to deviate from that description in perceivable,
agement, in theoretical space, is not ‘how do we know describable ways.
what we know?’ or ‘what do we do when we per- But a theory in and of itself does us little good, as
ceive?‘t or ‘is our knowledge right?’ The fundamental Hammer and Champy have so clearly demonstrated.
questions are: To create robust bodies of knowledge that work for
the firm, we have to have methods and practices-
0 Does our knowledge work? Does it produce econ-
ways of working with and for knowledge-that cover
omically-valuable performances?
what seem to be the major areas any theory of knowl-
0 How well does it work relative to other similar edge management is going to ‘discover’ at work in the
knowledges with which it competes in com- firm:
mercial settings?
Construction: the ‘making’ of knowledge through
cl How do we break down the prejudices and complex processes involving creation, theft, tra-
assumptive barriers that preclude management of duction and reinterpretation.
knowledge in the firm?
Embodiment: the transformation of a knowledge
cl How do we create knowledge, practically speak- that is tacit-held in the head of a knowledge
ing, as a part of our business practices? worker, shared in relative secret among a small
team of confederates-into processes and prac-
cl How do we embody knowledge in products,
tices, machinery, materials and cultures.
services, processes and cultures?
Dissemination: the distribution of embodied
0 How do we maintain and enhance our knowl-
knowledge throughout a firm or value chain.
edges?
Use: the application of disseminated, embodied
- - knowledge to particular problems and classes of
*The topic of knowledge management strategy-planning and problems, with a view to the production of results:
analysis for knowledge management-is woefully underrepresented to making knowledge work.
in academic and popular literature.
tActually, these problems become significant for knowledge man- Management: the monitoring, measurement and
agers during and after the transition to Phase 2 (instrumentation). intervention in construction, embodiment, dis-

Understanding Knowledge Management

 semination and use by knowledge managers: peo- edge creation, embodiment, dissemination, use
ple with firms who are responsible for the and management, and that each of these five activi-
‘knowledge machine’ as opposed to its products.* ties requires substantially different complexes of
information technology to do its work.
Once a theory has organized the chaos of knowledge
in the firm, and allowed us to develop methods and
practices to systematize construction, embodiment, Infrastructure Gets Us to Commercial
dissemination, use and management, we face the eter- Performance
nal problem of infrastructure: durable cultural and Deploying the three kinds of infrastructure properly
technical systems that facilitate the day-to-day pro- and completely gets us the knowledge-rich firm.t In
cess of knowledge-building. Broadly, there are three the same way that TQM disciplines emphasize clos-
classes of infrastructural concerns we have to address: ing the loop between practice, measurement of prac-
tice, and improvement of practice, knowledge
1. Cultural infrastructure: today, what one knows is
management produces financial and competitive
considered central to job security and compen-
results only to the extent that the knowledge man-
sation, which accrue in proportion to the extent to
agement infrastructure is installed, operational and
which ‘what I know’ remains in my head. Knowl-
capable of informing on itself-linking the con-
edge management rewards embodiment and dis-
struction of knowledge to its embodiment to its dis-
semination and incessant knowledge creation, and
semination to its use to its performance: the
so requires fundamental changes to deep-seated
productive effects of superior knowledge in the
cultural givens in most firms.
marketplace.
2. Operational infrastructure: human resources
organizational practice manages (one would like
to say nurture instead) human bodies, human feel-
Managing Commercial Knowledge
ings and human perceptions, but not the human
mind. Everything about a traditional human for Economic Value
resources organization, and much of conventional
If knowledge management does not support the objec-
organizational design and operations, require
tive of increasing the quality and quantity of market-
retooling in a knowledge-centered firm. Job
place performance, it is at best a soft discipline-
ladders, compensation, work locale, command-
useful for enhancing the corporate culture, but finally
and-control structures-all have to focus on the
a nice-to-have, rather than a necessary practice.
individual knowledge worker and her team, and
Knowledge management pundits argue that in fact
all have to be tied directly to the knowledge-pro-
knowledge is the capital of the ’90s and that, just
ducing capacity of that team.
as the CFO closely manages the capital of the firm,
3. Technical infrastructure: in the modern firm, reporting on cash flows and producing balance sheets,
knowledge travels through information tech- so a new corporate officer, the Chief Knowledge Offi-
nology. Later, it will become useful to distinguish cer (CKO) should be charged with managing the firm’s
between data, information and knowledge-for the knowledge assets along similar lines. But what is the
time being, it is broadly correct to say that infor- economic justification for such as position? Does good
mation technology’s primary strategic objective in knowledge management really deliver economic ben-
a knowledge-intensive firm is to facilitate knowl- efit to the firm along the same lines that smart financial
management does?

*It’s worth noting that ‘management’ in this context is not con- Knowledge Management and Innovation
ventional management of human assets: knowledge managers add Clearly, the most obvious link between knowledge
tangible value. The primary role of the knowledge manager is to
management and enhanced economic performance is
measure and evaluate the productivity of knowledge in the com-
mercial arena: to judge the extent to which a knowledge works in in the area of innovation. All studies of innovation in
ways the firm wants that knowledge to work, and that the knowledge the last 20years have come to pretty much the same
works better than competitive knowledges do. Thus, the knowledge conclusion: innovation begins with the construction
manager in this model is not a supervisor, standing to one side of the of a new kind of knowledge within the firm. Some-
productive process and-in the service of capital and the owners-
times-as in the classic case of the Post-It Note at
managing the productive mechanism. The knowledge manager
defines both the object of knowledge and its effectiveness, and is SM-the knowledge in question is targeted at uses
probably in many cases also the primary constructor or embodying different from those it ultimately serves. Sometimes,
agent of that knowledge. as in Hammer and Champy’s discussion of IBM
tin fact, this allows us to see the ‘virtual corporation’ as nothing Credit, the new knowledge is not product-centric, but
more than the collection of knowledge workers who are linked
process-centric: knowledge about a new way of doing
together via an infrastructure under the control of a single collection
of equity agents. The firm IS the knowledge management infra- something. Many times-consider the case of the IBM
structure it puts into play. PC-the firm’s own mechanisms, prejudices and pri-

Long Range Planning Vol. 30 June 1997

orities damage the effectiveness of the knowledge at on which exnovation is based comes from inside a
the heart of the innovation. firm, and how that knowledge most quickly gets into
And, in all cases, we can assume that innovation the hands of the people in the firm who execute the
will occur without the support of formal knowledge exnovation, knowledge management systems are the
management systems. So, why bother to formalize key to successful exnovation, and perhaps more
knowledge management if innovation will occur any- importantly, to the prevention of exnovations that the
way? The key is this: as markets become more frag- firm finds strategically or tactically undesirable.
mented and sparse, and market windows open for
increasingly brief periods of time, the key to economic
viability is not innovation per se, but repeated inno- Knowledge Management and the Cash Flow
vation with increasingly high levels of reuse (see the Cycle
section on Knowledge Management and Re-use Time-to-market, along with time-to-decide, are per-
below). In other words, a firm will have to more or haps the two most critical cycle time metrics in busi-
less innovate constantly, and do so within increas- ness today. As time-based competition becomes the
ingly short spans of time (see the section on Knowl- norm, particularly where the development and intro-
edge Management and the Cash Flow Cycle below). duction of new products and services are concerned,
The key strategic question is not will we innovate? firms intent on staying in business are going to have
but will we innovate fast enough, often enough and to devote increasing amounts of management atten-
efficiently? Because knowledge management systems tion to the concept-to-cash-flow cycle time: the
make visible and measurable what is otherwise latent amount of market time required to move from identi-
and presumably inefficient, and identify where in fact fication of market opportunity through development
the knowledge on which innovation is based comes into delivery and positive cash flow.
from inside a firm, and how that knowledge most For the most part, previous management disci-
quickly gets into the hands of the marketplace, they plines have rationalized and routinized the back end
are the key to a program of ceaseless innovation in of this process: product and service development and
products, services and processes. delivery models are widely-documented, generally
efficient and available. * However, the front end of the
Knowledge Management and Exnovation process -market identification, opportunity charac-
By its very nature, knowledge is disruptive and desta- terization, and product and service design-are still
bilizing. Although the classical definition of the firm knowledge-intensive black arts that appear, from all
is essentially conservative-the firm is inherently industry studies available, to be consuming an
inertial and therefore good-more modern critiques increasingly large portion of the total concept-to-
of the firm as a device for multiplying capital have cash-flow cycle time.
focused on the notion that firms ought to be courting Knowledge management systems applied par-
their own radical transformation, rather than con- ticularly to the front end of the cycle, focusing on
tinuing to do what they have always done in the way extracting good methods and practices in this area,
that they have always done it. BPR is nothing more and welding a well-defined design process to already-
than a particular view of how exnovation-the efficient development and delivery processes, are
removal of existing structure in favor of other more likely to produce significant cycle time reductions
appropriate structures-ought to take place. Exno- and increased likelihood of significant positive cash
vation, it turns out, is as important to a firm’s health flow every time (fewer failed or misdirected product
as innovation-and perhaps is a necessary precursor or service programs).
to innovation.
But BPR-as emblematic of most thinking about
exnovation in firms-says very little about what it Knowledge Management and Cultural
is that triggers the drive to exnovation. Again, it is Hygiene
knowledge-either about an existing structural The problems of cultural hygiene-of developing and
deficiency or a ‘better way’-that triggers exnovation maintaining a healthy corporate culture-are becom-
activities in a firm. And, once again, because knowl- ing more intractable as we are forced to deal with a
edge management systems make visible and measur- firm’s human assets as individuals, as employees and
able what is otherwise latent and presumably as members of the fluid constituencies that make up
inefficient, and identify where in fact the knowledge a firm at a time when

?? those individuals are more vocationally mobile

*Subject to the same disjunctive effects of technology or process than ever;
innovation, making dinosaurs of efficiency overnight. Consider for
example the effects of the World Wide Web on the delivery processes ?? basic assumptions about ‘what employees want’ are
for for-fee data. being overturned and plowed under;

Understanding Knowledge Management

 the constituencies employees build are coming ‘out suited for the flexible, ‘ceaseless learning’ environ-
of the closet’ and into open contestation for the ments of the 1990s.
firm’s destiny; This suggests that it is increasingly important for
firms who expect to capture an unfair share of the
the essence of the firm’s contract with its
knowledge workers in their respective labor pools
employees-job security in exchange for labor-is
to offer a working environment amenable to those
increasingly suspect by employers and employees
prospective employees. A firm that does not practice
alike.
knowledge management (and compensate knowledge
In this environment, so-called employees holding so- workers based on their contribution to the firm’s
called ‘thinking roles’-knowledge workers whose knowledge) will be at a significant competitive dis-
primary role within the firm is to construct, embody advantage in such a market.
and disseminate knowledge-become problematic for
the firm in two ways: Knowledge Management and Re-use
Re-use is the holy grail of knowledge-intensive com-
the demands of a knowledge worker, in terms of the
merce. The mass customization model is premised,
terms and conditions of her employment ‘contract’
fundamentally, on the notion that the only viable
with the firm, are increasingly idiosyncratic, and
business models are those that assume both standard
increasingly expensive for the firm, leading to a
product and service components and ‘markets of
significant net escalation in the burden rate associ-
one’-that reach extremely high levels of component
ated with thinking-role headcount;
re-use.
the contributions of a knowledge worker to the firm Particularly in service markets, much of the ‘cus-
can be interrupted without notice, and, more dis- tomization’ is the adaptation of the ‘wet’ components
concertingly, contributed to a competitor’s firm of the product or service-the knowledge-to a par-
immediately thereafter. ticular customer, on top of more or less standard prod-
uct or service building blocks.
In a firm without formal knowledge management sys-
Firms without knowledge management systems
tems, it is nigh to impossible for human resources
will be effectively unable to achieve the re-use levels
personnel and general management to:
required by the business model implicit in the mar-
assess the demands of this knowledge worker rela- kets they enter, and will lose market share to those
tive to her contribution to the firm’s knowledge firms who do practice knowledge management.
bases-is the employee in question worth her cost?
Knowledge Management and Corporate
form an adequate strategic assessment of the dam-
Memory
age done to the firm by the loss of the employee in
Commercial firms, particularly US firms, have notori-
question;
ously poor memories. The corporate past is lost
systematically require high-value knowledge wor- almost at the very minute it becomes ‘the past’-we
kers to embody their knowledge within firm prod- cannot remember what we did, the circumstances in
ucts, services and practices to prevent the loss of which we made decisions, the rationale for those
intellectual capital when the worker in question decisions, who said what to whom and what they
leaves the firm; meant by it. This is exacerbated by our collective
tendency to view discontinuity, in the form of
understand the knowledge worker in the context
mistakes, errors in judgment, or misperceptions as
of her working network, so that promotions and
evidence of ‘bad management’ and our resulting pre-
assignment changes do not damage productive
disposition to ‘revisionist history’ and the rewriting
knowledge communities within the firm.
of the corporate past to erase all discontinuity and
All of these necessary cultural hygiene tasks are replace it with a smooth ‘evolutionary view’ of
enabled by knowledge management systems. decision-making and policy-setting that, while it cre-
ates great cognitive dissonance within the rank-and-
Knowledge Management and the Competition file, makes us feel better about ourselves when next
for Human Assets we speak to the board of directors or shareholders.
Charles Handy and others have remarked on the fact The problem with this forgetfulness is that we are
that, worldwide, we appear to be producing fewer unable to learn from the past. Forward thinking firms
knowledge workers, not more-that, in fact, the are, paradoxically, simultaneously embracing learn-
vocational, specialist-oriented curricula that colleges ing organization precepts like ‘fail early and often’
and universities implemented in the 1980s in and at the same time erasing the traces of their failures
response to commercial requirements made public in through forgetfulness or revisionist myth-making,
the 1970s are not only not producing the workers depriving themselves of one half of the knowledge
needed now, but are producing workers singularly ill- creation machine: experience. It is truer today than

Long Range Planning Vol. 30 June 1997

 ( 384 \

ever that it is easier to know what not to do and how which decisions are taken, the parties to the decisions
not to do it, based on past failures, than it is to know in question, and the heuristics used to make the
what to do and how to do it based either on experience decision. The technology infrastructure knowledge
or more conceptual knowledge bases. management systems drag with them record history,
Knowledge management systems intervene in this aid our collective memory and prevent us from engag-
dysfunction by capturing rationale: the context in ing in revisionist history.

References
1. J. L. Borges, Other inquisitions 7937-7952, translated from the Spanish by Ruth L. C.
Simms, University of Texas Press (1993).

2. This is a position not too far from American pragmatism (James, Dewey) and the idea of
knowledge-for-action as exemplified in the work of Chris Argyris: C. Argyris, Know/edge for
Action: a Guide to Overcoming Barriers to Organizational Change, Jossey-Bass, San
Francisco (1993).

3. P. Clark and N. Staunton, innovation in Technology and Organization, Routledge, London

(1989). I am deeply indebted to Clark and Staunton for a number of the fundamental
models in this essay.

4. M. Castells, The Informational City: Information Technology, Economic Restructuring and

the Urban-Regional Process, Basil Blackwell, London (1989).

5. P. F. Drucker, Post-Capitalist Society, Harper Collins, New York (1993).

6. P. F. Drucker, Technology, Management and Society, Harper and Row, New York (1970).

7. M. Foucault, The Archaeology of Know/edge and the Discourse on Language, Pantheon,

New York (1972).

8. S. L. Goldman, R. N. Nagel and K. Preiss, Agile Competitors and Virtual Organizations:

Strategies for Enriching the Customer, Van Nostrand Reinhold, New York (1994).

9. M. Hammer and J. Champy, Reengineering and the Corporation: a Manifesto for Business
Revolution, Harper Collins, New York (1994).

10. C. Handy, Age of Unreason, Harvard Business School Press, Boston, MA (1990).

11. I. Nonaka and H. Takeuchi, The Know/edge-Creating Company: How Japanese Companies
Create the Dynamics of Innovation, Oxford University Press, Oxford (1995).

12. M. Polanyi, The Tacit Dimension, Doubleday, New York (1966).

13. M. Polanyi, Persona/ Know/edge: Towards a Post-Critical Philosophy, The University of

Chicago Press, Chicago (1962).

14. P. Senge, The Fifth Discipline: the Art and Practice of the Learning Organization,
Doubleday, New York (1990).

15. S. Wikstrom and R. Normann, Know/edge and Value: a New Perspective on Corporate
Transformation, Routledge, London (1994).

16. C. D. Winslow and W. L. Bramer, FutureWork: Putting Know/edge to Work in the

Know/edge Economy, The Free Press, New York (1994).

Understanding Knowledge Management