In the Know

Forget about the theory behind knowledge management. A new handbook details how organisations are putting KM into practice.

If it weren't for the sophisticated application of knowledge management, more than seven million men in the US, untold others in more than 90 other countries and all their significant others would be facing frustrating times. That's because Viagra, by far the most widely used treatment for erectile dysfunction, started its life as a drug to fight heart disease.

Happily for the millions of men who use it today to treat their difficulties in achieving or maintaining an erection, nurses involved in Pfizer's initial testing of Viagra noticed an unexpected side effect of the drug and recorded their observations on Pfizer's knowledge management system. Later, a clinician doing a meta-data analysis of their database discovered the trend, thereby recognising the drug's unique capacity to act as an innovative impotence treatment. The trialled heart disease drug was transformed into a breakthrough impotence cure capable of bringing in $US1 billion a year - and making many couples very happy indeed. With profit-making triumphs like this to its credit it's hardly surprising knowledge is becoming recognised as both the foundation of competitive advantage and the basis of market capitalisation of companies.

"The new economy of knowledge-based business has arrived, and Australia needs to capitalise on its knowledge assets too," says University of Technology Sydney's School of Management head, Professor Thomas Clarke. "The value of the enterprise and its operational performance will increasingly be measured by the way in which it creates knowledge, uses and reuses it to add value to its products and its processes, and to build better relationships with its customers."

The Pfizer story is just one of those detailed in what's been billed the most comprehensive survey of corporate examples yet published, the handbook titled International Best Practice - Case Studies in Knowledge Management. Incorporating cases on 40 companies from 13 industry sectors, the collaboration between Standards Australia and the University of Technology Sydney's School of Management details results of a survey completed in support of Standards Australia's Knowledge Management Framework . The case studies - which are to be followed by further empirical examination of KM initiatives inside selected companies - were co-authored by Professor Clarke and Faculty of Business research associate, Christine Rollo.

"In the knowledge economy the effective utilisation of knowledge resources is the very basis of competitive advantage," Clarke says. "Knowledge is becoming recognised as both the foundation of competitive advantage and the basis of market capitalisation of companies. The fusion of the emerging digital networks and rapidly developing knowledge tools and systems is creating the business knowledge revolution, but poor knowledge management can fatally slow an organisation," he says.

The report argues the case - backed by numerous case studies - for eschewing purely technical solutions to KM in favour of organisational and operational efforts designed to help the organisation capitalise on its knowledge assets.

"Knowledge management initiatives need to be closely integrated with business strategy, identifying and remedying critical knowledge gaps," the report's introduction says. "The strategic business drivers of knowledge management concern how to protect and develop the intellectual capital of the company, how to improve performance, and promote continual learning and innovation. Knowledge initiatives should support and enhance the core competencies of the organisation.

"The corporate interest in knowledge management has been fuelled by the remarkable increase in the market valuation of intangible assets. In this context it is assumed the purpose of knowledge management is to create the conditions in which people may integrate specialist knowledge to produce goods and services of increasingly higher value. Implicit in this is the belief knowledge can be stored, measured and moved around the enterprise. But most knowledge is tacit, and individuals and groups continually generate new knowledge.

"The reciprocity and trust required to generate the flow of knowledge requires recognition, encouragement and reward. Knowledge only reaches its full potential to create economic value when it becomes embedded in organisational routines and processes. Companies tend to invest in technology rather than attempting the organisational and cultural change needed to promote knowledge transmission and circulation. Information technology may be a necessary condition, but it is not a sufficient condition for knowledge management. As one authority puts it, ?'knowledge is a difficult thing to shrink-wrap'."

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Clarke says in conducting the survey he and Rollo were surprised to discover the range of knowledge management initiatives across industry sectors. And he has determined several distinct strategies among the many corporate approaches to knowledge management. For instance chemical and pharmaceutical companies and other organisations with significant "sunk" investment in research and development place much of their efforts on leveraging intellectual capital already in place - using existing patents more effectively and speeding up the process of patent application amongst other measures.

Thus Hoffmann-La Roche introduced two initiatives in 1993 - prototyping and a knowledge map - to help it harness the knowledge the company already had and apply it more uniformly, and to get more drugs to the market faster. In that context prototyping knowledge requirements meant gaining better understanding of the real needs of customers - in this case the regulators who approve drugs for release - with the help of a group of ex-regulators who fully understood the approval process.

The prototypes that emerged from the work represented the total accumulation of knowledge required for each new drug application (NDA). The sources and flows related to Roche's new drug development were then clarified by development of a knowledge map: a directory pointing people who need access to knowledge to the places where it can be found.

Of course, research and development are also core critical competencies for Pfizer. To ramp up its long product development cycle the company is developing a Web-based integration strategy linking its intranet, an extranet for managing some 500 strategic alliances, and the Internet so Pfizer's global teams can access legacy data and collaborate on projects more quickly. On this platform Pfizer has developed a tool called "E-sub" that lets the company access historical data and create the laborious, one million-page NDAs it then delivers to the Federal Drug Administration (FDA) electronically via a Sun server, for drug reviewers to access through a Web browser.

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While drug companies work on leveraging their sunk investments, manufacturers operating in highly competitive international markets strive to harness knowledge management techniques to the task of enhancing and speeding up the process of best practice sharing across multiple international production sites. Consumer electronics company Texas Instruments (TI) and vehicle makers Ford and General Motors are all cases in point, and their KM initiatives are also detailed in the Case Studies handbook.

In a way, for these companies, knowledge management partly represents a further advance of total quality management, Clarke says. Thus Best Practice Sharing was developed around the Texas Instruments-BEST (business excellence standard) four-step improvement process:

1. Define Business Excellence for your business.

2. Assess yourself against world-class criteria.

3. Define your business gaps and priorities.

4. Create an action plan and implement it.

The program is made up of a steering committee of 10 individuals from the various businesses and regions of Texas Instruments called the Best Practice Sharing Team, working with 138 worldwide facilitators. Together their role is to identify existing strengths within TI, to document those practices that provide improvement and share those practices throughout the organisation.

But as the handbook points out, companies like banks and insurance companies with large client bases have different priorities. They tend to stress the use of knowledge management to improve data mining and exchange between different functions and managers of the company in order to develop customer relationships and pursue further business opportunities with existing customers. In view of that, the Bank of Montreal has implemented a data warehouse called the customer knowledge database to help it understand the needs of its 18 million customers and analyse the profitability of its rapidly changing product and service portfolio. Westpac, meanwhile, embraces knowledge management as it seeks to make intellectual capital its principal organisational driver. The overall result, the case study says, is that Westpac has begun to take its customer capital seriously.

Clarke says professional service companies, like large accountancy and management consultancies, use KM to create knowledge networks that allow ready sharing of knowledge from complex assignments so that state-of-the-art solutions can be applied to particular client problems. Ernst Young has created one of the largest knowledge infrastructures in the world to help it obtain work and improve services to clients.

The company has a knowledge network for each key domain of knowledge within the consulting practice, creating 22 networks in the US practice alone, based on three areas of expertise:

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But are organisations in Australia thinking in the right way about knowledge at the moment?

Clarke believes there is a willingness to work with these ideas and to develop knowledge management practices. But he says the work needs to go much further if Australia is to shake off its label as an old economy country. "Australia currently is labouring under this, I think unjust, label of being an old economy, and needs to make energetic efforts to demonstrate to the world that actually it is indeed very much a part of the new economy," Clarke told CIO.

"I had a conversation a while ago with the CSIRO director for the resources industries for Australia and he told me that Australian resources companies export $1 billion of software a year. So, rather than these kinds of industries being typified as old economy, we should be able to see their potential to compete with knowledge and with high technology in world markets and to help both Australia's balance of trade and also Australia's image in the world," he says.

Clarke cites work by Margaret Blair of the Brookings Institute in the US to support his argument that managers are growing more rapidly than anyone had ever imagined into knowledge managers operating in a knowledge economy. Blair first surveyed all the industrial sectors in the US in the late 1980s. She repeated the survey in the late 1990s. In the 80s survey, across industrial sectors more than 40 per cent of assets were intangible assets, Clarke says. By the late 1990s the figure had grown to more than 70 per cent of all assets, across all industrial sectors.

"Obviously if you looked at the high-tech sector and professional services and so forth, 90 per cent or more of the total value of companies would be their intangibles," Clarke says. "So managers are growing, probably more rapidly than we'd imagined, into knowledge managers operating in a knowledge economy."

Yet Clarke argues that while almost all of the literature now stresses the organisational and cultural bases to effective knowledge creation and knowledge flows, organisations are finding that the challenges this poses are extremely difficult.

"We know that one of the big failings of information technology is that companies will invest in the hardware and software, but not invest in the training," he says. "Well the same is true of knowledge management, but with knobs on, because what it does involve is significant investment in developing people and organisations and processes in ways that are more open and sharing. That takes some time and obviously companies are very short of that kind of opportunity of investing time in this.

"But those companies that have made the effort, internationally at least, have seen significant benefits."

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In addition to the discovery of Viagra, other successes attributed to the implementation of other organisations' own knowledge management systems, set out in International Best Practice Case Studies in Knowledge Management, include:

Ford Motors, which implemented knowledge sharing practices that effectively drove down its vehicle concept-to-production time from 36 months to 24 months. The flow-on value of this has been estimated at $US1.25 billion.

Better parts compatibility for Boeing, which previously was forced to retrofit parts from separate suppliers to make sure they fitted together, an especially burdensome task considering commercial 747s, 767s and 777s each contain about four million parts. Boeing and parts suppliers now have full visibility via the Web into parts specifications, production schedules and maintenance histories for every plane.

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