Managed knowledge a valuable asset

By Bambang Wicaksono Witoyo

JAKARTA (JP): Unlike other kinds of company assets, knowledge increases in value differently.

In comparison to capital assets, knowledge assets have two distinct characteristics.

First, "harvesting" knowledge does not increase its value, instead its value increases when used and "shared" with the right people. Knowledge is a capital asset that grows in value as it is used. When knowledge is used over and over again, it tends to becomes polished and updated and consequently more valuable.

A second distinct characteristic of knowledge is that its value is not only indexed to an individuals knowledge base, but to the entire organization's knowledge.

This characteristic is double-faceted.

First it is marked by collectiveness. That is, if the knowledge involves explanation of a certain process, then every individual participating in the process would have his/her own valued opinion on how to improve the existing situation. At the same time, input to increase the value of existing knowledge need not come only from those involved in the process; individuals and groups outside the inner sanctum may possess fresh perspectives.

Knowledge has always been recognized as a key factor for business success. However, only in the last decade, as the competitive business environment intensified, has it become crucial for business success. Only then did business players understand that competing for rival business systems, and using common industry management practices have its limitations.

To excel, companies cannot just implement common management practices, they must tailor or even create new techniques for their purposes. The best source for these tailoring and creating opportunities comes from the collective knowledge within a company.

This point deserves reflection. Standard analysis presupposes that fresh perspectives to help reengineer processes originate outside the company.

However, effective internal knowledge management can result in solutions that are not only innovative, but more importantly appropriate for the organization.

Greater appreciation for the intrinsic value of knowledge has prompted initiatives at both micro and macro levels, accelerating performance growth to levels that previously could only be imagined.

Companies are not the only organizations that have created growth by leveraging the value of knowledge. Community organizations from a wide spectrum have experienced economic growth from using a knowledge-based system of expansion.

A knowledge-based approach provides significant contributions at both micro and macro economic levels.

How important is managing knowledge at the micro level?

In economics, the "micro level" concerns companies and individual players.

Knowledge at this level is obviously important. We know that an organization receives input from outside as well as inside its boundaries; processing and creating output is information.

Here, information plays two roles. First, to ensure that internal processes continue to work as expected and second, to ensure that the organization displays appropriate growth as it adapts to changes in its internal and external environments.

Excelling in these two roles will enable an organization to survive. Taking the roles on board will enable an organization to meet its short-term goals, and consequently succeed in achieving its long-term vision. It's that simple. Like other successes, growth arises from a solid foundation.

What are the specific components of these roles, which are central to the longevity and health of an organization?

As a key ingredient to an organization's longevity, knowledge needs to be managed to ensure that it continuously evolves to be become more valuable. For example, the assembly procedure for assembling a Swatch watch is knowledge that may continuously evolve into ones that will reduce costs and time in the production process.

However, so that the process or information optimally evolves into something more valuable, it should be used and "shared" with all the right people in the company.

These efforts have led companies to initiate programs to regulate information known as Knowledge Management (KM).

KM is defined as the systematic approach to obtain the collective knowledge of an organization. It includes gathering, evaluating, consolidating, organizing, distributing and applying the organization's knowledge.

Moreover, the value of KM applies to both manufacturing companies and service providers.

One KM initiative is the development of the internal knowledge database. A firm with a global perspective, such as Andersen Consulting, provides an example of this approach.

Not only does the company share the expertise of its employees across countries, but knowledge in the form of methodologies and experiences are stored in databases accessible from any one of its offices around the world. Stored information is used, challenged and updated, continually increasing its value.

But even if a company has solid KM database systems, it should realize the importance of employee retention as a key element to keep knowledge evolving inside the company.

Chief executive officer of Hanigan Consulting in New York, Maury Hanigan, said: "Companies don't always see the relationship between recruitment and retention ... You keep hiring, and you're still not in a stronger position than last quarter".

The option of recruiting experienced employees from outside is available. However, companies run the risk of having to pay higher compensation, accept lower company loyalty, and deal with the new personnel's adjustment period. All these factors impede a company's learning curve and impact on daily operations.

To put it simply, KM initiatives ensure the longevity of the organization's operations through continual improvement of available knowledge. This process encourages growth with minimal interruption.

At the macro level, how has managed knowledge affected the growth of major economies?

Here, the word "major" is used to distinguish between developed economies and developing and underdeveloped ones. It becomes evident that when we compare activities among economies, we find that a key characteristic that separates the two main economic groups is the establishment of infrastructure that allows information sharing. One of the information vehicles that optimize such infrastructure use is the Internet.

The Internet allows knowledge and information to be used and shared by people at the macro level -- spanning from individual interests to country concerns. With its almost limitless potential, the Internet is a one-stop source of information.

To understand the Internet's substantial contributions, we need to look at the impact it has had on two economic players: sellers (organizations) and consumers. The relationship between these two groups is critical.

As a information-sharing vehicle, the Internet has greatly improved the relationship between vendors and consumers. Sellers have more information on the needs of their target customers, and consumers have more information to help them make better buying decisions.

On the company's part, the Internet provides information about consumers' needs, progress of the related products, and information about the industry and its stakeholders, all at low cost.

Access to such information provides businesses with ideas to improve their products and services, and enhances internal processes which enable them to be more competitive. Such measures lead to higher expectation standards throughout the industry.

This, as a result, creates a synergistic effect, where the whole is greater than the sum of its parts. If the improvement effect is imitated by other industries, the result is continual improvement in the whole economy.

As a two-way relationship, consumers also gain. From the information they obtain from the Internet, consumers are able to make better decisions regarding the product or service they buy, pushing suppliers to be more competitive in their businesses.

Additionally, consumers can provide feedback, which will be available for sellers to use on-line and real-time, further increasing expectation standards throughout the industry. With the support of the market economy, only the best players will be given the opportunity to operate.

The value of managed knowledge is clear. But at what cost? And how do we measure the return? Because the kinds of knowledge management programs required by organizations vary, the costs also vary.

The benefits obtained from such programs usually outweigh any outlay, even though they are generally difficult to gauge.

One reason for these measurement difficulties is because the impact of KM programs is massive and diverse, adding value throughout the different activities in the organization and/or the economy.

The main challenge for business leaders is to identify value- adding KM programs that may be initiated in their companies.

As leadership guru Warren Bennis said: "The problem facing almost all leaders in the future will be how to develop their organizations' social architecture so that it actually generates intellectual capital".

The writer is a change management analyst at Andersen Consulting, a global consulting company in management and technology.