Chapter 2
Knowledge DNA
Summary
This chapter invites you to embrace the challenges and opportunities of the knowledge era - to reshape how you think about your organisation, its potential, and how it creates value.
In the 21st century, value is created predominantly from knowledge-based goods, services and solutions. In effect, we conjure value from thin air, with knowledge-based capabilities comprising the DNA of strategic potential. For organisations, the enterprise's people, their knowledge and innovative capacity are at the heart of strategy and performance, and organisations that excel in attracting, creating, managing and sustaining knowledge capabilities are advantaged.
Effective management of knowledge capabilities delivers tangible benefits to organisations - operational efficiency, opportunities to better service customer and stakeholder needs, and a springboard for innovation. At the level of strategy, understanding knowledge assets provides new insights about the organisation's potential. True knowledge-focused organisations drive strategy from their distinctive knowledge capabilities - for these organisations, building and utilising distinctive corporate knowledge is a key focus.
Just as other assets are managed, knowledge assets need to be managed. But we cannot manage knowledge assets using familiar methods. Knowledge itself is poorly understood as a competitive and strategic resource, and organisations struggle to create day-to-day value from knowledge. In practice, maximising benefit from information and knowledge assets is a tangle of contradictions. Managing knowledge assets is about both information and expertise; standardisation and innovation; what we know today and what will emerge tomorrow. Welcome to the knowledge era.
What's new about the knowledge era?
Most of us make our money from thin air; we produce nothing that can be weighed, touched, or easily measured. Our output is not stockpiled at harbours, stored in warehouses or shipped in railway cars. Most of us earn our livings providing service, judgement, information and analysis.
Charles Leadbeater
Let us start out by acknowledging that knowledge creation, use, sharing and retention has always been important. What is new is the significant shift towards a systematic and strategic approach to managing the primary assets of the knowledge economy - people, knowledge processes and knowledge products. These three assets no doubt characterise most of the organisations you know.
Globally, knowledge has become the most important factor in economic development and knowledge assets are considered essential for economic growth, competitive advantage, human development and quality of human life.1 Research conducted by the Organisation For Economic Co-Operation and Development (OECD) has found that the quality of workers' skills and knowledge has a significant impact on the economic and social future of developed nations such as Australia.2
For organisations, capability anchored in knowledge-based resources is critical to sustained competitive advantage. However, simply possessing knowledge-based resources will not itself achieve competitive advantage - these resources must be managed in ways that allow the organisation to leverage them for strategic advantage.3 In short, it's not what you know, but how you use it!
Knowledge management is the discipline that formalises approaches to understanding and benefiting from knowledge assets at the firm level. The intellectual antecedents of knowledge management include economics, sociology, philosophy and psychology.4 Reflecting this, knowledge management is best thought of as a framework rather than as a single approach - a collection of elements that work together in varying combinations to accomplish the goal of leveraging an organisation's knowledge capital.5
This chapter uses a knowledge lens to reconsider the value of intangible resources (expertise, capability, knowledge and information) and how they are put to use. What does all this mean in day-to-day terms? Let us take a look.
I'm sitting on the tarmac with an eight-hour flight ahead of me. Around me my fellow passengers are beginning to form the same question: why aren't we moving?
The confident, reassuring voice of the pilot silences the murmurs in the cabin. 'Ladies and gentlemen, you will have noticed that we have a short delay. We have a routine technical issue that we need to resolve. We've refuelled the aircraft; however, our fuel gauge isn't registering what we've put on board. Now, we know that we've got the right amount of fuel in the tank, but our operating procedures say we must have two independent checks that we have the fuel we need to take us north. It's just a formality, but we need to get the refuellers back out here to measure that the right amount is in the tank. It's a nuisance, but then again none of us wants to end up as a headline on tonight's six o'clock news.'
We think about this. Five hours from now, somewhere southeast of Singapore and we're suddenly, unexpectedly, completely out of fuel.
And then we go back to our pre-flight reading - it's all under control.
Fifteen minutes later: 'Just an update, ladies and gentlemen. As I said, we know that we've got the right amount of fuel in the tanks but because our gauge says differently we have to confirm what's in there before we can get underway. I know that this seems like an unnecessary inconvenience, but our procedures are understandably strict. Our engineer is now with us, verifying what we've got on board. I apologise for the inconvenience, but our procedure says that we need to do it and it won't take long.'
Back to the waiting. It's going to be a mid-evening arrival, at best, and there's a busy day ahead tomorrow. Impatience.
Captain again. The tone's still pleasant and light, but is that a hint of an edge? 'Well, ladies and gentlemen, an update. It seems that in fact we don't have enough fuel on board after all. We're rectifying this now and will be underway as soon as we're fuelled up.'
The information sinks in and glances are exchanged. There's that image again of an expanse of water and a plane with an empty fuel tank. Just how close were we to being the lead story on the six o'clock news?
What value does knowledge contribute?
Let us pause for reflection on the vignette and the tangle of what was known, not known and what was done. In this case the refuellers thought they knew that they had put enough fuel in the tank; the captain thought he knew that the fuel gauge must be faulty. Fortunately, the company knew that the risk associated with mistaken beliefs needed to be systematically managed and mitigated; and the pilot not only knew that the relevant procedure existed, but as importantly knew that he needed to apply the procedure in this situation.
There is much at play here - the experience of the air and ground crew, the standard operating procedures, and the body of organisational experience that sits behind the procedures' development and application. In combination, these supported the captain - no doubt as anxious as everyone else to get into the air on time - in making an appropriate decision.
Importantly, though, the example does not define the scope of knowledge management. It is an example of using knowledge and information to achieve a standardised outcome, by removing unwanted variation in performance - that is, avoid the plane dropping from the sky. Knowledge management contributes to standardisation; and it underpins creativity and innovation.
Let us pause to think through the implications of a dual focus embracing consistency and creativity. To continue with an aeronautical example, when my plane is approaching its descent, I do not want air traffic controllers to spontaneously experiment with new ways to separate aircraft. (It is not the time for the controller to distractedly muse, 'I wonder what would happen if I tried . . .') Instead, I want the controller to faultlessly apply the standard, tried and true best practice. I would have the same expectation should I find myself on the surgeon's table. And if something goes wrong in the air or in the operating room, I do not want the professional to down tools and search for the latest version of the 300-page procedure manual. When the unexpected happens, I want the expert to use their judgement, their experience-based insight (quickly!), to solve the problem.
So I am putting knowledge to work in two distinctly different ways. I am asking for best practice to be readily identified and applied; and I am asking for the consistent practice to be underpinned by the professional skills of the individual using the practice. The relationship (some would say tension) between the two can be illustrated as follows.
Sustainable performance improvement in the enterprise will be driven by:
- Standardisation. Standardisation is achieved when the enterprise consistently applies best practices system-wide.
- Innovation. Innovation benefits flow when the organisation encourages, identifies and uses value created from...
