Jason Schloetzer has been working in financial and operational roles in the telecommunications field for the past several years.  His current role as Manager of Internal Audit at Global One Communications in Reston, VA is providing him the opportunity to utilize his KM skills within the department. 

He is also founder of the Global One KM Forum, a loosely joined group of employees aimed at sharing KM insights, techniques and literature for discussion and implementation throughout Global One.  Schloetzer received his B.S. in Mechanical Engineering from the University of Kansas in 1997 and is currently working to complete his M.B.A in International Business and Strategic Development from The George Washington University.  Jason is also being certified as a Knowledge Manager.  

(Plan to read to the very end of this article for some extraordinarily helpful KM references you may wish to check out--both print and on-line.)

Managing the Intangible - Knowledge
by Jason Schloetzer 

"Tangible assets have finite applications; intangible assets have infinite applications." Hubert Saint-Onge.

 Can You Define KM?

Is knowledge management (KM) a boardroom buzzword, consultant catch phrase or the future of managing a company in the new knowledge economy?  Type KM into an Internet search engine and you find thousands of web-site references, yet everyone I ask has either never heard of it, or can not easily define it.  But once I describe the concept of KM as an effort to retain, analyze and organize employee expertise to make it available to the organization (Stuart, 1998), the same people believe KM could be of interest to companies.  In today’s environment, businesses like IBM, Nokia, Skandia, and Hewlett-Packard are not only trying to develop new products and grow market-share, they are trying to deal with the effects of downsizing, globalization and employee turnover.   

Questions Management Is Asking 

Management is beginning to ask questions like (Gundry & Metes, 1996): 

Many businesses are finding these questions hard to answer and are turning to concepts set forth in knowledge management to begin finding solutions. According to a recent “London Financial Times”(2000) article, the International Data Corporation estimates that global spending on KM systems and consulting was $2 billion in 1999 and will reach $12 billion in 2003. 

Knowledge Management – Evolving with the Understanding of “Knowledge” 

As knowledge management draws more attention, it also draws more critics.  The wide variety of topics covered in KM, the uncertainties associated with implementing KM practices, effects on employees and the difficulty in identifying the balance sheet value of KM techniques have been major obstacles in the KM revolution.  However, most companies agree, to stay competitive in today’s business environment they need to manage knowledge better or lose to the competition (Amidon, 1996).

First, it is important to note that many KM concepts have existed for years within companies all over the world, just under different names.  For example, most companies publish employee handbooks and practice market and competitive intelligence (Ash, 1997).  Also, since KM is still in its infancy, definitions are continuously in flux.  Knowing this, it has become important to clearly define what KM is about.  To best set forth the basic, current definition of knowledge management, a brief look to KM’s roots is necessary. 

Many KM scholars trace its roots to the concepts of artificial intelligence (Amidon, 1996).  Researchers hoped that computers would be able to ‘see’ patterns in data and make sound business decisions.  These concepts were used to develop data mining software which analyzed massive amounts of data and allowed users to extract information which could be used to make business decisions (Verity, 1997).  Other efforts were made to use technology to harness and leverage the knowledge within organizations.  Conferences were held discussing the nature of knowledge and the use of these software tools to make better decisions.  Definitions of KM have moved past a sole technology focus, but technology remains a key foundation (Duffy, 2000).  Newman (1991), creator of The Knowledge Management Forum, stated this well, asserting that KM is concerned with the entire process of creation, dissemination and utilization of knowledge in the organization and that it is a part of all jobs.  This expansion in the definition of what is organizational knowledge set the groundwork for other KM terms like “knowledge assets” (Duffy, 2000), corporate “know-how” (Amidon, 1996) and, most notably, intellectual capital (Roos & Roos, 1998).  

Intellectual capital (IC) exists in all companies and include copyrights, research, best practice databases, brand loyalty and the savvy of senior management (Dzinkowski, 1999).  It is the combination of physical (buildings, equipment) and intangible assets that generates all the wealth of any company (Nasseri, 1996; Roos & Roos, 1998).  The ability to identify, develop and quantify IC is the basis of today’s KM definitions.  Knowledge management is about creating value based on the company’s intangible assets by using relationships where “the creation, exchange and harvesting of knowledge builds the individual and organizational capabilities required to provide superior value for customers.” (Saint-Onge, 1996:14)  The organization must use knowledge to make decisions then use the decisions as a basis for “new” knowledge.  This is a basic definition of today’s activities around strategic knowledge management, the most discussed and general definition for KM.  This growth in the understanding of organizational knowledge corresponds to the expansion seen in the topics covered by KM. 

In summary, a basic definition of KM is set forth.  Having this understanding, how are companies addressing the management of knowledge in their organizations?  What practices and techniques have proven useful?  These questions are explored throughout the next section. 

Implementing Knowledge Management

The evolution of techniques implemented to support KM initially sprouted from the emergence of information technology and the proliferation of computers within organizations (Ryan, 1995).  For purposes of comparison, this is labeled the static knowledge management technique.  A company that practices static KM is managing its intangible assets much like companies have managed tangible assets for years.  A tangible asset is stored in a warehouse; an intangible asset is stored in a database (Malhorta, 1997; Hildebrand, 1999a).  The corporate Intranet has become one of the main repositories for static knowledge (Malhorta, 1997).  Many companies now post best practices, business process flowcharts, and performance statistics to their Intranet sites.   

Although a good start, this technique is no more advanced than data mining.  In fact, research has shown pure static KM techniques may not work as well as anticipated.  A study conducted in 1999 by Teltech Resource Network Corporation looked at 93 KM applications at 83 different companies.  The study indicated that only 32 percent of static KM applications were deemed successful by management (Hildebrand, 1999a).  Why?  Gundry and Metes (1996) believe using technology as the sole technique for managing knowledge only captures routine work experiences, or explicit knowledge.  Malhorta (1997) states that static KM is only suited for well-structured problems in predictable business environments.  Continuing, Malhorta (1997) argues that knowledge is dynamic, subjective and interpretative in nature and will never be able to address an individual’s actions, values or emotions, which has been called tacit knowledge.  These concepts of tacit and explicit knowledge remain key building blocks in KM evolution and account for substantial amounts of discussion in recent papers (Ghoshal & Nahapiet, 1998; Warren, 1999; Brown & Woodland, 1999; Hill & Storck, 2000).  To combat these assertions, a modified form of managing knowledge emerged. 

Thomas Davenport (1996) addressed these concerns, for purposes of comparison, with hybrid knowledge management techniques.  In hybrid KM, Davenport (1996) provides a renewed focus on the employee and organization, not just computers and communications systems.  This would be the technique used to support Duffy’s (2000) and Newman’s (1991) definition of KM.  Hybrid KM takes the databases created in “Round One” (Davenport, 1999) and adds “pointers to people” (Davenport, 1996), analogous to Ghoshal and Nahapiet’s (1998)“referral” system.  Davenport (1996) believes this combination of computer and human knowledge enables a knowledge seeker to find explicit knowledge, then contact the person(s) who actually participated in the knowledge activity, yielding the ability to gather tacit knowledge.  Malhorta (1997) describes this as the “human aspect of KM.”  Teltech’s study found that 71 percent of KM applications that incorporated this human aspect into traditional static knowledge management techniques were deemed successful by management (Hildebrand, 1999a).  However, what happens when the people “pointed” have left the organization?  This still leaves companies at the mercy of a knowledge monopoly (Davenport & Prusak, 1998).  In today’s literature, KM techniques are calling for focus on special teams, or communities, not just focus on the individual or the organization.  This type of KM is referred to as strategic knowledge management (Ellis & Tissen, 1999). 

Strategic knowledge management techniques focus on building the framework in an organization to foster the exchange of knowledge in a community-oriented environment (Ellis & Tissen, 1999).  This framework can be found in corporate culture and organizational structures.  Organizational structures designed with strategic KM “draw boundaries around the activities of individuals and groups and help to specify and develop the relationships between them” (Ryan, 1995;2).  Through the corporate culture, strategic KM techniques develop social communities of employees with similar knowledge needs (Ghoshal & Nahapiet, 1998).  This is different from the traditional team environment where groups are forced together to solve one particular task.  Through these communities, people are encouraged to participate and the opportunity exists for knowledge to be combined and exchanged (Ghoshal & Nahapiet, 1998).   

Recent successes with these techniques at the Xerox Corporation have been explored by Hill and Storck (2000;3), “The communities represented a strategic knowledge management capability and provided a means of more broadly exploiting tacit knowledge than would have been possible…in traditional teams.”  Larry Prusak, Executive Director of IBM’s Institute for KM, believes that to help form these communities, companies need to provide space (either cyberspace or meeting areas), time and encouragement (Hildebrand, 1999b).  Xerox accomplished this by using several tactics.  First, knowledge workers were encouraged to join the community, not mandated by the organization.  Second, the groups were loosely facilitated by community selected leaders that varied in organizational title.  Finally, the groups were given tasks to complete but were not given time barriers for decisions.  Xerox management told the community that it had confidence timely decisions would be made (Hill & Storck, 2000). 

Knowledge management techniques have changed with the evolution of KM itself. Many companies remain hesitant to adopt any KM techniques until management understands the cost of implementing these practices and value created by managed knowledge. 

The Value of Managed Knowledge and Associated Organizational Costs 

The valuation of intellectual capital (IC) has become a hot-topic in the field of KM (and accounting).  Why?  Many businesses are finding that in order to gain buy-in from senior management, the KM business case must show: 

  1. How managed knowledge will generate value, and

  2. What KM will cost

Traditional accounting standards do not provide the guidance necessary in valuing all intangible assets (Lev, 1997).  The International Accounting Standard Number 38, “Intangible Assets”, only discusses patents, copyrights, goodwill, and research and development costs (IASC, 1998).  Nothing is mentioned about employee knowledge, best practices or investments in training. Despite the difficulty in valuing IC, the losses are intuitively costly (Brown & Woodland, 1999).  Traditional financial statements would not show the loss of IC, and the subsequent impact to the company, if 1,000 employees would suddenly leave the company (Roos & Roos, 1998).  However, KPMG’s research indicates that, after losing key employees, 43 percent of organizations experienced damage to a main customer relationship, 50 percent had lost knowledge of best practice information and 10 percent had lost significant income (Warren, 1999). 

To place a value on intellectual capital, most current literature proposes the following.  For publicly traded companies, the value of IC is the difference between the market capitalization and the book value (summation of assets less depreciation) of the company (Roos & Roos, 1998; Skandia, 1998; Saint-Onge, 1999).  For example, Intel’s market capitalization in 1997 was $110 billion while its financial book value was $17 billion.  This hidden value of $93 billion is stated as the value of Intel’s intellectual capital (Svieby, 1997).  Roos & Roos (1998) made a similar comparison with Microsoft.  A recent study by the Brookings Institute in Washington shows that this “missing value” has grown from 38 percent of a company’s market capitalization in 1982 to 62 percent in 1995 (Dzinkowski, 1999).   

Skandia, a Swedish insurance company, has made strides to quantify their IC through further exploration.  Using work that won the 1992 Nobel Prize in Economics, Skandia has divided IC into several subsets, customer capital, human capital and organizational capital (Roos & Roos, 1998; Skandia, 1998). 

In Skandia’s annual Intellectual Capital Prototype Report (1998), these terms are defined with supporting details regarding how calculations of value are made.  Skandia’s advancements, as well as efforts by KPMG (KPMG, 2000), Buckman Laboratories and McKinsey & Company (Davenport, 1996) are providing tools by which management can determine the company’s present IC value and foresee future IC growth (or shrinkage).  These tools are being used by Deutsche Bank to give loans with only IC as collateral (Henry & King, 1999). 

The valuation of IC is receiving much attention in today’s literature.  However, the cost of implementing KM techniques is not as clear.  Research by Buckman Labs estimates that companies spend 3.5 percent of its revenues on KM (Davenport, 1996).  McKinsey & Company has an objective of spending 10 percent of revenues on developing and managing knowledge (Davenport, 1996).  Keeping with the earlier Intel example, these estimates would place the cost of managing knowledge within Intel between $595 million and $1.7 billion in 1997.  By not clearly understanding the “intellectual liabilities”, or cost of KM, it remains difficult for companies to calculate any balance sheet effects.  Scholarly literature has only recently begun to explore the cost of KM, with little empirical data showing true organizational costs (Harvey & Lusch, 1999).

KM Barriers, Blunders and Benefits

There are many organizations currently using one of the KM techniques described above.  Although each is facing its own difficulties, recent KM literature has outlined several major barriers to successfully introducing KM.  These include managing the knowledge worker (Scarbrough, 1999), reluctance of workers to share their knowledge (Scarbrough, 1999; Sutton, 2000) and the identification of a knowledge leader (Davenport, 1996; Duffy, 2000).  The exploration of each topic is required for further discussion about KM. 

A recent survey suggests that 20 percent of the workers in an organization provide 80 percent of the knowledge (Scarbrough, 1999).  When KM techniques are implemented, these knowledge workers become the main knowledge providers.  Sutton (2000) argues that these knowledge workers are the company’s most talented people and have no time to enter their knowledge into a system.  Knowledge workers need training to understand KM’s role and the KM techniques need to be promoted to gain the buy-in of these key employees (Hildebrand, 1999b).  As an alternative, Davenport (1996) believes that the organization needs to have KM implementers who spend time with knowledge workers and enter the information themselves. 

It is no secret that knowledge is power.  A frequent management complaint about implementing KM has been that some employees resist sharing their knowledge out of fear the company will replace them (Scarbrough, 1999; Ghoshal & Nahapiet, 1998).  “Trust lubricates cooperation and cooperation breeds trust.” (Ghoshal & Nahapiet, 1998;252)  The corporate culture has to encourage and demonstrate trust to enable easier KM implementation.

Recent KM literature also discusses the difficulty in deciding who should lead the KM revolution.  With few exceptions, leadership has not come from senior management or the creation of a Chief Knowledge Officer, although some companies, including IBM, have found this method successful.  Companies who are successfully using KM techniques believe that true knowledge leaders are found near the middle of the organizational chart (Duffy, 2000; Hill & Storck, 2000).  Mid-level managers frequently have the responsibility of proving KM’s worth upward, downward and across organizational structures (Ash, 1997).

Once an organization has managed to implement a KM technique, there are several key blunders that hinder their success.  These blunders include overfilling knowledge repositories (Warren, 1999; Duffy, 2000) and not maintaining already entered content (Malhorta, 1997; Hildebrand, 1999a).  In an effort to ensure no knowledge is missed, some companies are putting too much information into their KM systems.  It is important to understand what knowledge is required before undertaking the task.  Also, companies need to continuously add new, and remove outdated, knowledge.  Without maintenance, knowledge becomes outdated which could contribute to poor decision making. Teltech research has indicated that no KM application was successful if the knowledge was not continuously updated (Hildebrand, 1999a). 

Companies who currently use KM techniques are quick to note that, although difficult to quantify, they are experiencing some cost reductions.  Ken Derr, Chevron’s CEO, states “We learned that we could use knowledge…to drive improvement in our company by emphasizing the shopping for knowledge outside organizations rather than trying to invent everything ourselves.” (Ash, 1997)  Derr believes KM techniques are saving the company over $250 million annually.  Beyond the cost savings due to reduced cycle times and higher product quality, more attention should focus on the “intangible savings” indirectly related to managing knowledge.  Community focused organizations experience increased employee interaction and communication, as seen at Xerox (Hill & Storck, 2000).  The more knowledge intensive and cohesive an organization becomes, the higher the threshold becomes for employees to leave the company because fewer outside organizations can offer similar levels of knowledge.  This reduction in turnover implies large cost savings for companies.  Ellis and Tissen (1999) estimate that companies spend 2.5 percent of their salary expense on training newly hired employees.  Subsequently, with reduced turnover, the organization is able to increase entrance criterion for new positions, enabling an organization to recruit people with higher, specialized knowledge.  It could also be argued that employees with high organizational knowledge have a better grasp of their jobs and require less management supervision.  Quicker, higher quality decisions could be made from lower levels of the organization.  For employees who interact with customers, these intangible benefits could translate into better customer service with faster reaction times to customer questions.  This better customer interaction provides an organization with an intangible competitive advantage.  Any combination of these examples would provide a company with significant, albeit difficult to quantify, cost reduction opportunities. 

The exploration into managing organizational knowledge is still at its infancy.  Future evolution of KM techniques may include the use of multimedia resources to capture knowledge.  For example, corporate Intranets could include audio transcripts of important meetings instead of “meeting minutes."  Video of how a retiring skilled laborer performs a task could be used as an educational tool to train future new employees.  With these exciting possibilities, KM is likely to assume a greater role in improving organizational performance in the new knowledge economy.

References 

Amidon, D.M. (1996, June). The Momentum of Knowledge Management. Research-Technology Management, Journal for Industrial Research Institute, 11: pp. 13-18.

Ash, J. (1997, August). State of the Art Among Early Adopters of Knowledge Management. Knowledge Inc., 8, 8: pp. 36-42.

Brown, R.B.,& Woodland, M.J. (1999, December). Managing knowledge wisely: A case study in organizational behaviour. Journal of Applied Management Studies, 8, 2, pp. 175-198.

Davenport, T. (1996, First Quarter). Some Principles of Knowledge Management. Strategy and Business, 10, 5: pp. 105-116.

Davenport, T., & Prusak, L. (1998). An Interview with the authors of Working Knowledge: How Organizations Manage What They Know. [On-Line]. Available: http://www.brint.com/km/davenport/working.htm

Davenport, T. (1999, November 1). Knowledge Management, Round Two. CIO Magazine,

Duffy, J. (2000, January). Knowledge management: To be or not to be? Information Management Journal, 34, 1: pp. 66-67.

Dzinkowski, R. (1999, October). Managing the brain trust. CMA Management, 73, 8: pp. 14-18.

Ellis, J., & Tissen, R. (1999). Doing Business in the Knowledge Based Economy: Strategic Challenges for Competition and Growth. Amsterdam: Pearson Education/Addison Wesley Longman.

Ghoshal, S., & Nahapiet, J. (1998, April). Social capital, intellectual capital and the organizational advantage. Academy of Management. The Academy of Management Review, 23, 2: pp. 242-266.

Gundry, J., & Metes, G. (1996). Team Knowledge Management: A Computer-Mediated Approach. [On-Line]. Available: http://www.knowab.co.uk/wbwteam.html

Harvey, M.G., & Lusch, R.F. (1999, February). Balancing the intellectual capital books: Intangible liabilities. European Management Journal, 17, 1 pp. 85-92.

Henry, J.M., & King, A.M. (1999, November). Valuing intangible assets through appraisals. Strategic Finance, 81, 5: pp. 32-37.

Hildebrand, C. (1999a, February 15). Making KM Pay Off. CIO Magazine,

Hildebrand, C. (1999b, December 30). KM Gets Real. CIO Magazine,

Hill, P.A., & Storck, J. (2000, Winter). Knowledge diffusion through strategic communities. Sloan Management Review, 41, 2: pp.63-74.

IASC. (1998). International Accounting Standard IAS 38: Intangible Assets. Wimbledon: Clifford Frost Limited.

KPMG. (2000). The KPMG Value Explorer: The Netherlands. [On-Line]. Available: http://www.kpmg.interact.nl/value-expl/index.shtml

Lev, B. (1997, April 7). The Old Rules No Longer Apply: Intellectual Capital Measurement. Forbes Magazine, 72, 13: pp. 34-38.

London Financial Times. 2000. National News: In search of the first and last word in data control. February, 8: 1B.

Malhorta, Yogesh. (1997). Knowledge Management in Inquiring Organizations. Proceedings of 3rd Americas Conference on Information Systems: August 1997, pp. 293-296.

Nasseri, T. (1996). Knowledge Leverage: The Ultimate Advantage. [On-Line]. Available: http://www.brint.com/papers/submit/nasseri.htm

Newman, B. (1991). An Open Discussion of Knowledge Management. [On-Line]. Available: http://www.3-cities.com/~bonewman/what_is.htm

Roos, G., & Roos, J. (1998). Intellectual Capital. New York: New York University Press.

Ryan, M. (1995). Human resource management and the politics of knowledge: Linking the essential knowledge base of the organization to strategic decision making. Leadership & Organization Development Journal, 16, 5: pp. 3-10.

Saint-Onge, H. (1999). Knowledge Management: According to Saint-Onge. [On-Line]. Available: http://www.knowinc.com/saint-onge/primer/hso1.htm

Scarbrough, H. (1999, March). Knowledge as work: Conflicts in the management of knowledge workers. Technology Analysis & Strategic Management, 11, 1: pp. 5-16.

Skandia. (1998). Intellectual Capital Prototype Report. [On-Line]. Available: http://www.skandia.com/capital/concept.htm

Sutton, R. (2000, January 3). Knowledge management is not an oxymoron. , 1: p.28.

Svieby, K.E. (1999). What is Knowledge Management: An online learning manual. [On-Line]. Available: http://www.knowledgecreators.com/km/kes/kes1.htm

Verity, J.W. (1997, May 12). Coaxing Meaning out of Raw Data. Business Week, 35, 18: pp. 121-127.

Warren, L. (1999, December). Knowledge management: Just another office in the executive suite? Accountancy Ireland, 31, 6: pp. 20-22.