BUMGT 5926 S dM f Ch Master of Business Administration BUMGT 5926 Strategy andManagement of Change Workshop 3 The Knowledge Economy Dr Abang Nawawi Dahlan BSc (Hons) Malaya, MSc (Durham, England), DBA (SCU Australia) Adjunct Professor of Strategic Management Adjunct Professor of Strategic Management
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BUMGT 5926 S d M f ChMaster of Business Administration
Adjunct Professor of Strategic ManagementAdjunct Professor of Strategic Management
Objectives• Define knowledge and informationD fi k l d d di h i i• Define knowledge economy and discuss where is it going
• Describe the influence of knowledge in the• Describe the influence of knowledge in the development of competitive advantage
• Describe how knowledge can be managed and howDescribe how knowledge can be managed and how successfully organisations can apply knowledge management
• How can knowledge management be embedded in strategy?D fi l i i ti I it i t t ith th• Define learning organisation. Is it consistent with the evolution of the modern organisation?
Reading MaterialsArticles:• Greiner, M.E., Bo¨hmann, T. and Krcmar, H. (2007). A strategy
for knowledge management, Journal of Knowledge Management 11 (6) pp 3 15 ISSN: 13673270Management, 11 (6), pp. 3‐15, ISSN: 13673270
• Dimitriades Z S (2005) Creating Strategic Capabilities:• Dimitriades, Z. S. (2005). Creating Strategic Capabilities: Organizational Learning and Knowledge Management in The New Economy, European Business Review, 17 (4), pp. 314‐324. y, p , ( ), ppISSN: 0955534X.
Any other updated journal articles and cases
Data, Information, , ,Knowledge, Wisdomg
The Hierarchy of MeaningsThe Hierarchy of Meanings
WisdomK l d ith i i ht
Context
Historical
Purpose
Mentoring
Knowledge
Knowledge with insight
I f i i h iSt t i
g
Setting direction
Information
Information with meaning
Managerial
Strategic
Decision making
direction
Data with contextg g
DataFacts about events and observations
Operational Processing transaction
• Data– the basis for creating information and g
knowledge – is a set of discrete, objective facts about
eventsevents. – represented by characters and can be
produced, codified, and distributed without a reference to the context or person.
D t b i f ti h it t– Data becomes information when its creator adds meaning
– As a news or message created by the interpretation of data (Rehaeuser and Krcmar, 1996)1996).
– Data endowed with relevance and purpose (Drucker)
KnowledgeKnowledge
• Justified true belief (Nonaka and Takeuchi 1996)• Justified true belief (Nonaka and Takeuchi 1996)• A fluid mix of framed experience, values, contextual
information and expert insight • Ability of persons to evaluate information and act
efficiently (Sveiby, 1998).• Originates and is applied in the minds of knowers In• Originates and is applied in the minds of knowers. In
organisations, it often becomes embedded not only in documents and repositories but also in organisational routines processes practices and norms (Davenportroutines, processes, practices and norms (Davenport and Prusak 1998)
• Can provide added value if it results in actions and d i i (O’D ll d G 1998)decisions (O’Dell and Grayson, 1998).
• Tacit and explicit knowledge
Two different types of knowledge:Two different types of knowledge:
Tacit Knowledge
• Tacit knowledge is the personal and context‐ifi k l d fspecific knowledge of a person.
• Tacit knowledge is made up of insights, g p g ,judgement, know‐how, mental models, intuition and beliefs.
• As it is bound to the person it is thus difficult to formalize and communicate. Consequently, it is not possible to separate, store, and distribute the whole knowledge of somebody.
Explicit Knowledge• Explicit knowledge in contrast can be codified,
collected, stored, and disseminated. It is not bound to a person and has primarily the characterbound to a person and has primarily the character of data.
• Explicit knowledge is described as formal, systematic and objective ....codified in words or numbers. It can be derived from a number of sources including data, business processes, policies and procedures and external sources such as intelligence gatheringas intelligence gathering.
Role of KnowledgeRole of Knowledge
• For many organizations, the most valuable assets are their knowledgeable employees and workers.
• In the RBV of the firm, knowledge is regarded a vital organisational resource (Barney, 1991)
• Knowledge resources possess valuable, rare (unique), imperfectly imitable and (non) substitutable traits and can be exploited to achieve a sustainable competitivecan be exploited to achieve a sustainable competitive advantage (Alavi and Leidner, 2001).
• Different types of knowledge require different types ofDifferent types of knowledge require different types of knowledge management strategies.
Five Things We Can Do With Knowledgeg g
Generate it
Identify ItIdentify It
Transfer /Socialize It
Codify/Represent ItCodify/Represent It
The New Economyy
The New Economy?• The term New Economy refers to a set of qualitative and quantitative changes that, in the last 20 years, have transformed the structure, functioning, and rules of the geconomy.
• The New Economy is a knowledge and idea-y gbased economy where the keys to job creation and higher standards of living are innovative ideas and technology embedded in services and manufacturedtechnology embedded in services and manufactured products.
• It is an economy where risk, uncertainty, andIt is an economy where risk, uncertainty, and constant change are the rule, rather than the exception
The New Economy?yToffler: Waves of economic change
Living standardsInformation wave
g
Living standards
Industrial waveAgricultural wave
Time
The New Economy?The New Economy?Keys to the Old and New EconomiesKeys to the Old and New Economies
ISSUE OLD ECONOMY NEW ECONOMY
E Wid Ch i iEconomy‐Wide Characteristics:
Markets Stable Dynamic
S f C titi N ti l Gl b lScope of Competition National Global
Organizational Form Hierarchical, Bureaucratic
NetworkedBureaucratic
Industry:
Organization of Production Mass Production Flexible Production
Key Drivers of Growth Capital/Labor Innovation/Knowledge
Key Technology Driver Mechanization Digitization
The New Economy?ISSUE OLD ECONOMY NEW ECONOMYSource of Competitive Lowering Cost Innovation, Quality, Time‐To‐yAdvantage Through
Economies of ScaleMarket, and Cost
Importance of Research/Innovation
Low‐Moderate High
R l ti With Oth Fi G It Al Alli A d C ll b tiRelations With Other Firms Go It Alone Alliances And Collaboration
Workforce:Policy Goal Full Employment Higher Real Wages andPolicy Goal Full Employment Higher Real Wages and
IncomesSkills Job‐Specific Skills Broad Skills and Cross‐Training
Requisite Education A Skill or Degree Lifelong LearningLabor‐Management Relations Adversarial CollaborativeNature of Employment Stable Marked by Risk and p y y
Regulation Command and Control Market Tools, Flexibility
The Knowledge Economy:Definition:The knowledge economy is the ‘production and g y pservices based on knowledge-intensive activities that contribute to an accelerated pace of technological and scientific advance as well astechnological and scientific advance as well as equally rapid obsolescence’.
The key components of a knowledge economy includeThe key components of a knowledge economy include
• a greater reliance on intellectual capabilities than on physical inputs or natural resourceson physical inputs or natural resources,
• efforts to integrate improvements in every stage of h d i f h R&D l b hthe production process, from the R&D lab to the
factory floor to the interface with customers.
A defining aspect of the New Economy is the increased importance of knowledge.
• The emergence of the knowledge economy andglobalization are closely linked. g y
• Globalization has brought about
• Corporate reorganization since the 1970s,
• Revolutions in information and communication technology,
• Deliberate government actions such as deregulation and forceable opening of markets in some developing countries.
• The knowledge economy both necessitates and facilitates deeper integration of the global economy
• The global knowledge economy is network-based.
There are 2 types of knowledge industries:
1. The Knowledge generators1. The Knowledge generators Those industries whose major product is knowledge itself.
This group includes industries such as software, biotechnology, and information technology hardware; and occupations such as engineers, scientists, programmers, and designers, whose major output is research that translates into new j pproducts and services.
Just as capital- and machinery-intensive industriesJust as capital and machinery intensive industries (e.g., autos, chemicals, steel) drove growth in the 1950s and 1960s, knowledge production firms are the growth engines of the New Economythe growth engines of the New Economy.
2. The Knowledge users Those industries that manage or convey information.
This group includes industries such as telecommunications, banking, insurance, advertising, law, medicine, and much of government and education; and occupations such as managers, lawyers, bankers, sales reps, g , y , , p ,accountants, and teachers
In these industries effective handling andIn these industries, effective handling and managing of information, rather than breakthrough knowledge generation, are the keys to successkeys to success.
The Knowledge Economy: Where is it going?g y g g
Export High Values Added
Knowledge-Based
Goods &
Export Textile &
Electronic
Electrical & Electronic
Goods
Goods & Services
Technology EraKnowledge Era
Innovation EraManufacture of Import
Substitution Goods
Goods
Industrial Era
Technology EraExport of
Rubber, Tin, Palm Oil &
Timber ProductivityKnowledge
DrivenInnovation &
Human Capital
Agriculture Era
Timber
InvestmentDriven
ProductivityDriven
pDriven
g
Labour-Driven
DrivenLabour-Driven
1960’s 1970’s 1980’s 1990’s 2000’s > 2000’s
How can knowledge be managedHow can knowledge be managed and how successfully can
• It is well established that knowledge is the cornerstone for competitive advantage.
• Managers see knowledge as an important resource to manage, just as they manage cash flow, raw materials and other resources.
• To be of value, knowledge needs to be identified, , g ,evaluated, acquired, transferred, stored, used, maintained and possibly disposed of.
Knowledge Management is concerned with the systematic identification, evaluation, acquisition, creation, storing, sharing and use of knowledge in g g gorganizations aiming to improve a firm's competitiveness via continuous, rapid innovation.
• To achieve these objectives, enterprises use various instruments and interventions through which organizational employees' explicit and mainly tacit g p y p yknowledge is shared through collaborative work, becomes explicit and eventually is made available to the larger organizationthe larger organization.
• An effective management system may • incorporate a variety of technologies • incorporate a variety of technologies, • supported by leadership that values learning, • an organisation structure that supports
i ti d i f ti h i dcommunication and information sharing, and• processes for managing change.
T ifi h l i h Two specific technologies that facilitate knowledge management are b i i t lli ft d business intelligence software and corporate intranets or networks.
The use of new business intelligence ft h l i ti k software helps organisations make
sense out of huge amount of data. Th bi l t d These programs combine related pieces of information to create k l d knowledge.
Four Major Categories of Knowledge ProjectsFour Major Categories of Knowledge Projects
• Making Knowledge Visible
• Creating Knowledge Intensity
• Building Knowledge Infrastructure
• Developing Knowledge Culture
Barriers To Transfer …And To Sharing?
Lack of trust Build relationships and trustBarriers Coping with BarriersLack of trust Build relationships and trust
Different cultures, vocabularies, Create common groundframes of reference
Lack of time and meeting places; narrow idea of productive work
Establish times and places for knowledge transfers
Status and rewards go to knowledge owners
Evaluate performance and provide incentives based on sharingg g
Cont…
Lack of absorptive capacity in i i
Educate employees for flexibility; id i f l i hi f
Barriers Coping with Barriers
recipients provide time for learning; hire for openness to ideas
Belief that knowledge is prerogative of particular groups, not-invented-here syndrome
Encourage nonhierarchical approach to knowledge; quality of ideas more important than status of sourcenot invented here syndrome important than status of source
Intolerance for mistakes or need f h l
Accept and reward creative errors d ll b ti l f t tfor help and collaboration; no loss of status
• Future changes – diffusion of e‐business; nature of the intellectual property system;nature of the intellectual property system; convergence of cultures and norms and absorptive capacity
Knowledge Spiral
Implementing KM Strategy Through Organizational Design
Organizational structure, control, and culture shape people’s behaviors, values, and attitudes – and
d t i h th ill i l t i ti ’determine how they will implement an organization’s knowledge management strategy.
The Roots of Competitive AdvantageThe Roots of Competitive AdvantageKnowledge as a vital resourceKnowledge as a vital resource to build capabilities.
One of the main challenges in managing a firm’sknowledge is transferring knowledge from its sourcet h it i d d (Al i d L id 2001 F hto where it is needed (Alavi and Leidner 2001, Fahey and Prusak 1998, Ruggles 1998).
However, unlike tangible assets, firms often do not know where the knowledge is located or how much it is worth to them.
Firms have coped with such challenges by mainlyusing two knowledge management (KM) approachesusing two knowledge management (KM) approaches (Zack 1999b, Hansen et al. 1999):
The codification approach andThe codification approach, and
The network or personalization approach.
Approaches to KnowledgeApproaches to Knowledge Management StrategyThe codification approach, involves codifyingknowledge into electronic repositories that aremade accessible to all workers in the firm.
The network or personalization approach, e et o o pe so a at o app oac ,centers on facilitating interpersonal knowledge sharing through networks of people (Liebeskind et al 1996 Hansen et al 1999 Borgatti and Crossal. 1996, Hansen et al. 1999, Borgatti and Cross 2003, Singh 2005, Wasko and Faraj 2005).
Firms use codification for sharing explicitFirms use codification for sharing explicit knowledge and the network approach for sharing tacit knowledge.
Codification StrategyCollect knowledge store in databases and provide theCollect knowledge, store in databases, and provide the available knowledge in explicit and codified form.
Part of the strategy includes design of database documentPart of the strategy includes design of database, document management and workflow management
Benefits:
• Saves time and money.
• The design of databases document management and• The design of databases, document management, and workflow management.
• Assumed to be successful for companies whose business• Assumed to be successful for companies whose business strategy requires re-using existing knowledge (Hansen et al., 1999; Malhotra, 2004).
Network/Personalisation StrategygyPersonalization strategy use Information Technology to help people transfer, communicate, and exchangehelp people transfer, communicate, and exchange knowledge via knowledge networks such as discussion forums.
Ideal strategy to adopt if the business strategy focuses on generating new or customer specific solutions or product innovations.
Which strategy to adopt?
• Codification enjoys “scale economies” in knowledge j y greuse.
• The network approach enjoys “expert economies” in pp j y pproviding value-added customized solutions.
• Firms that focus on providing standard solutions should follow the codification approach.
• Firms that focus on providing highly customized services h ld f ll h k hshould follow the network approach.
• Some firms adopt both strategies, consider codification d t k h i d d t ll l l ti fand network sharing as dependent parallel solutions for
managing knowledge.
How can knowledge management be o ca o edge a age e t beembedded in strategy?
• The strategic direction of the organization should determine the direction of the KM activity.
• There should be a fit between business and KM strategy that leads to improved business performance.
• The main objective of business strategy is to build and sustain Competitive Advantage through attaining superiority in efficiency innovation quality andsuperiority in efficiency, innovation, quality and customer responsiveness.
Th t KM t t i C difi ti d• The two KM strategies are Codification and Personalization.
A Fit Model Between Business Strategy and KM Strategies
Business Innovation Efficiency Quality CustomerBusinessStrategy(Functional)
• Structure• Leadership• Culture• Control system Measuringy Measuring
knowledge
KM Outcomes• Innovations
KM Systems• Knowledge strategy
• Competitive Advantage
• SCAS i bili
• KM Structure• KM Metrics
• Sustainability
Diffusing and implementing new knowledge
LearningLearning Organisation g
The Learning Organisation
An effective management system must be supported by an
The Learning Organisation
An effective management system must be supported by an organisation structure that supports communication and information sharing, processes for managing change, and leadership that values learning leadership that values learning,
Successful organizations create an organizational environment that combines knowledge management with organizational that combines knowledge management with organizational learning.
The learning organization approach suggests that organizations The learning organization approach suggests that organizations that can ‘learn’ faster than their counterparts have an advantage over competitors in the marketplace.
When the organization learns, new knowledge is created.
Learning Organization effectively utilizes its knowledge resources to generate superior performance.
What is the learning organisation?
The learning organisation is an organisation in which The learning organisation is an organisation in which everyone is engaged in identifying and solving problems, enabling the organisation to continuously experiment, improve and increase its capability.
Knowledge-based view of the firm contends that competitive success is governed by the capability of organizations to develop new knowledge-based assets (KBAs) that create core competencies.( ) p
Knowledge can be created through organizational learninglearning..
The Roots of C titi Ad tCompetitive Advantage
Distinctive competencies shapeDistinctive competencies shape the functional-level strategies that
a company can pursue. KnowledgeKnowledge
Organizational Learning
Function-level strategies can build resources and capabilities to
enhance a company’s distinctive competencies.
The learning organization may indeed be viewed as a strategic objective -i d fit bilit tincreased profitability or customer satisfaction, representing the desired ends (learning organization) to be achievedends (learning organization) to be achieved via the appropriate means (organizational learning).
Characteristics of The Learning Organization
L d hi i th l b hi h Leadership is the only means by which an organisation can change into a learning organisation Leaders who understand the organisation. Leaders who understand the learning organisation can help other people build it. One of the most important functions of a leader in a learning organisation is to create a shared vision.
Team-based structure is used in which the Team based structure is used, in which the fundamental unit is self-directed teams. In learning organisations, bosses practically are eliminated, with team members taking responsibility for things such as training,
f t d h d li g h lid safety, and scheduling holidays.
Employee empowerment means giving Employee empowerment means giving employees the power, freedom, knowledge and skills to make decisions and perform effectively. In learning organisations, people are a manager’s primary source of strength.
• Open information is available in a learning organisation To identify needs and learning organisation. To identify needs and solve problems, people have to be aware of what is going on. They must understand the whole organisation as well as their part in it.
• Participative strategy in learning organisations sees strategy emerge bottom up as well as top down. Top management shapes a vision and direction Top management shapes a vision and direction supported and believed in by all employees, but do not control or direct strategy alone – everyone helps.
• Strong, adaptive organisational culture is the foundation of a learning organisation. Culture is the
t f k l b li f d d t di g h d set of key values, beliefs and understandings shared by organisation members. The learning organisation culture creates a sense of belonging, community and caring that supports other elements, such as teamwork and participative strategy. The culture values risk-taking, improvement and change
B ildi Bl k f Th L i O i tiBuilding Blocks of The Learning Organization
What fundamentally will distinguish learning organizations from traditional authoritarian ‘controlling organizations’ will be the mastery controlling organizations will be the mastery of certain basic disciplines.
These are Personal mastery, Mental models, Shared vision, Team learning Team learning, Systems thinking.
Building Blocks of The Learning OrganizationBuilding Blocks of The Learning Organization
Personal Personal mastery
Mental Models
Team learning
Systems Thinkingg
Shared Vision
Personal Mastery
• To attain a special level of proficiency. • The discipline of continually clarifying and • The discipline of continually clarifying and deepening our personal vision, of focusing our energies, of developing patience, and of seeing reality objectively reality objectively. • To realize the value of this discipline, leaders and managers alike should place emphasis to develop the connections between personal learning and organizational learning, in the reciprocal commitment between individual and organization, and in the special spirit of an enterprise made up of learners.
Mental Model
Mental models are deeply ingrained assumptions, generalizations, or even pictures or images that influence how we understand the world and how we take action.
Shell’s extraordinary success in managing through the dramatic changes and through the dramatic changes and unpredictability of the world of oil business in the 1970s and 1980s came in large measure from learning how to surface and challenge managers’ mental models (De Geus, 1990).
Shared Vision
The capacity to hold a shared picture of the future we seek to create we seek to create.
The practice of shared vision involves the skills of e p act ce o s a ed s o o es t e s s ounearthing shared ‘pictures of the future’ that foster genuine commitment and enrolment rather than compliance.
In mastering this discipline leaders learn the In mastering this discipline, leaders learn the counter-productiveness of trying to dictate a vision, no matter how heartfelt.,
Team Learning
Team learning starts with a ‘dialogue’, the capacity of members of a team to suspend assumptions and of members of a team to suspend assumptions and enter into a genuine ‘thinking together’.
Dialogue involves learning how to recognise patterns of interaction in teams that undermine learning.
Team learning is vital because teams not Team learning is vital because teams, not individuals, are the fundamental unit in modern organization.g
Systems Thinking
Systems thinking make the full patterns clearer. You develop ‘simulations’ and ‘system archetypes’ You develop simulations and system archetypes to see holism and interconnectedness.
Peter Senge (1990) develops some systems archetypes – Balancing process with delay; Limits t g th Shifti g th B d E di g g l to growth; Shifting the Burden; Eroding goals; Escalation; Success to the successful; Tragedy of the commons; Fixes that fail; Growth andthe commons; Fixes that fail; Growth andunderinvestment.
Is the learning organization t i t t ith thconcept consistent with the
evolution of the modern ?organisation?
Requires The changing Management Paradigm
Requires organizational
Learning?
Managerial Mindsets 1900 –1930s
1930s –1970s
1970s - 2010 2010 onwards
Classical Humanistic Systems Theory The Collaborative Organization
Organisational Forms FunctionalM h i ti
InterlockingG g i
Contingencyt i
Divisional t k d Mechanistic Group organic matrix networks and
alliances
Management Principles
Hierarchy Supportiverelationships
Differentiation and Integration
CollaborativeIndividualismPrinciples relationships and Integration IndividualismEmpowerment
Managerial Processes
Management Functions
Democratic Leadership
Open Systems analysis
Management of meaningProcesses Functions Leadership analysis meaning
Managerial Skills Person-to-person control
Goal settingfacilitation
Rational / diagnostic
EmphaticProactive
Managerial Val es Efficienc Self Self reg lation Social Managerial Values EfficiencyProductivity
Self-actualization
Self-regulation Social sustainabilityEcological balance
Hypercompetitve and Volatile Environments
Today’s increasingly hypercompetitive and volatile environments requires
i i i iorganizations to engage in continuous learning cycles – continuously challenging their mission vision strategies and culturetheir mission, vision, strategies and culture and constantly questioning existing products, processes, structures and systems in view of p , ythe future market place.
It i k l d hi h t bIt requires new knowledge which must be constantly acquired, created, shared and implementedimplemented.
Is Learning organization relevant in the new economy?
S i th t t fi t t k t lSuccess in the twenty-first century marketplace requires efficiency of current operations combined with the foresight or preparedness to be an innovator; that is, doing things cheaper and better and faster than competitors.
Hence, "building a learning organization or creating and then using knowledge management systems are organizational innovations"systems are organizational innovations (DiBella, 2001, p. 8).
This requires developing a strategic leamingThis requires developing a strategic leaming capability by linking organizational learning and knowledge management in and among organizationsorganizations
Organizational learning and Knowledge Management fitg g
Case Reading: gMcKinsey’s Knowledge Management Practices• Source: 1. Bartlett, C A & Ghoshal, S. (2000). Transnational ( )
Management – Test, Cases and Readings in Cross‐Border Management, 3rd Edition, McGraw‐Hill International, Case 6‐3 McKinsey & Company: Managing Knowledge and Learning P664McKinsey & Company: Managing Knowledge and Learning P664 – p680.
• 2. Gupta, V and Perepu, I. (2007). Mckinsey's Knowledge M t P ti ICFAI C t f M t R hManagement Practices, ICFAI Center for Management Research, reference, 907‐025‐1.
Discussion Questions:• How did Mckinsey manage knowledge over the period of the
?case?• What role did knowledge management play in strategy?• Is their industry special? What are the lessons for otherIs their industry special? What are the lessons for other