Knowledge Management and its Advantages in Business - Research Paper Example

?RUNNING HEAD: KNOWLEDGE MANAGEMENT AND ITS ADVANTAGES IN BUSINESS Knowledge Management and its Advantages in Business School Knowledge Management and its Advantages in Business Executive Summary Knowledge management refers to collecting and processing of data, information and knowledge in an attempt to continually improve on organizational and human performance, and create an environment of learning and growth. In the information driven and competitive business environment today, knowledge management plays a critical role in enhancing sustainable competitive advantage. Knowledge management plays a critical role in attracting and maintaining customers, and which helps in profitability. It also contributes in the attainment of competitive advantage by integrating organization processes, technology and people. And finally, it helps in sound leadership by facilitating the adoption of relevant and timely strategies that will ensure that the organization is driven towards sustainable profitability and growth. Introduction Knowledge management can either contribute to the corporation or harm it in the attainment of the corporate goals (Firestone, 2001). Thus, in order to assess its effect upon the organization, knowledge management must be considered as one of the business processes of the organization (Firestone, 2001). This way, it can be determined whether the organization is moving closer or farther from the goals and objectives (Firestone, 2001). Measuring KM effectiveness can be attained by measuring its impact upon the other business processes, the goals and benefits (Firestone, 2001). Figure 3 The Path from KM Introduction to Benefit (Source: Firestone, 2001) Knowledge is an intangible asset and therefore cannot be observed. In recent times, management of knowledge has gained a lot of focus in organization management. Essentially, it has become one of the most important assets in business today. Knowledge management can be defined as the continual and persistent interaction among players in a system that leads to enhancement and maintenance of the systems knowledge base. The system or organization produces knowledge by gathering and organizing information and integrating the information in its strategies, goals and objectives to ensure adaptability and sustainable growth. In other words, an organization utilizing knowledge management continually compares existing knowledge with new information and adds up its knowledge base to improve on its method of production, strategies in an attempt to ensure that its targets and goals are attained (Firestone, 1998). In a business setting, knowledge has three main building blocks, namely: a) data which is raw, and without context; b) data is then transformed into information which is usable; and c) lastly, information is interpreted and combined to beget knowledge. There are two main types of knowledge, tacit knowledge and explicit knowledge. Tacit knowledge is derived from experience, and refers to expertise or knowledge that is difficult to transfer orally or through writing. For example, mechanical expertise can, to an extent be classified as tacit because it is acquired in time through experience and practice. On the other hand, explicit knowledge can be documented and taught through classroom learning. Explicit knowledge can easily be shared without necessarily having to practice or train (Marquard, 1996). Statement of the problem In the corporate environment, multiple factors that have emerged in the recent past have continually changed the approach and way of conducting profitable and sustainable businesses globally. Increased competition due to global economic development, liberalization of international markets, advancement in technology and global integration has significantly changed the competitive landscape. Moreover, increased information access and globalization has not only increased consumer choice but also shifted power from producers to consumers. Traditionally, critical success factors such as product leadership, capital advantage and monopoly are no longer as important due to the factors aforementioned. Therefore, for businesses to effectively compete, the need to come up with new strategies and ways of doing business is critical. According to Halawi, Aronson and McCarthy (2005), “there is a general acceptance that sustainable competitive advantage in the 21st century will be accomplished thru Knowledge management.” Knowledge management addresses vital issues in today’s environment with regards to organizational survival, adaptation and competence amidst increasingly competitive business environment. This paper attempts to evaluate the truth-value of the above argument. The paper evaluates the role of knowledge management in the creation of sustainable competitive advantage in business. Moreover, it explores the role knowledge management plays in creating sustainable customer relationships; the role of knowledge management in integrating technology, organization processes and human resource management; and its contribution to effective leadership. Advantages of Knowledge Management Knowledge management is crucial in strategic management as it helps in formulation of new ideas and strategies that will help an organization create and maintain sustainable development. Some of the strategies that KM plays an active role include the following areas: customer relationship management, b) knowledge management, information systems and organizations, and c) knowledge management and leadership. Customer Relationship Management There are several advantages of using knowledge management in customer relationship management. In today’s business environment, increased competition has shifted power from producers to consumers. Access to information, technological development and dominance of the mass media has a) increased consumer choice, taste and preferences, and b) made today’s consumers to become highly responsive to changes in product quality and cost. In this regard, for sustainability to be achieved, the need for producers to continually adapt to ever changing customer taste and preference is critical. Customer relationship management (CRM) is one of the avenues that business uses to ensure revenue maximization. CRM refers to the strategies and on-going effort to discover, attract and maintain customers. It focuses on forging and building on customer relations in an attempt to attract new customers and nurture existing relations. CRM as a discipline heavily relies on knowledge management. Ideally, CRM entails the systematic use of customer information in forging relationships and continually reevaluating customer changing tastes and preferences, expectations, needs and habits. Knowledge management therefore plays a significant role in and tailoring specific strategies and policies based on information acquired over a period of time to ensure customer’s excellence, and consequently attaining loyalty (Boland, Morrison & O’Neil, n.d.). According to MacStravic (2004), knowledge management plays a role in enabling customer interaction management (CIM) and customer experience management (CEM). CIM refers to remote association between the customer and the firm which are aimed at customer acquisition. It entails marketing, sales and service contacts and other promotional forms that help the firms make sales. KM plays a critical role in CIM to the extent that it helps the firm understand consumer perception, attitude and ultimately taste and preferences. Knowledge management in CIM helps the firm understand why customer seeks a particular brand and reasons for demanding certain goods and services. Knowledge management helps in segmenting the market and understanding the needs of different types of customers and therefore helps management train sales personnel and introduce systems that promote CIM. According to MacStravic (2004), if knowledge management is effectively used in CIM, then the business ‘gets the right information to the right customer at the right time and in the right form.’ On the other hand, customer experience management focuses on retention of customer to the extent that it focuses on achieving customer loyalty through development of customer lifetime values. Knowledge management plays a critical role in retention of customers. It helps in the collection of individual customers needs, preferences and taste. Such knowledge can be used to ensure that goods and services are tailored to meet customers’ individual needs and therefore maximize his or her experience (Boland, Morrison & O’Neil, n.d.). A good example is the treatment of guests in five star luxury hotels. Luxury hotels such as the Ritz maintain an elaborate database of its repeat guests which document information such as the preferred floor, room and view, favorite dish, conditions and diseases, phobia, allergies, or the brand of preferred cigarettes among others. This knowledge is thereby used by management to create an environment that not only increases customer experiences but also suits his or her particular needs. The use of knowledge management and current technology, more specifically computer information system, enables The Ritz to access and use this information in all their hotels worldwide and therefore make their traveling guests at home no matter where they are (Lampton, 2003). Knowledge management, information systems and organizations It is important to distinguish between information management and knowledge management. Information management entails management of information systems to ensure that relevant information is transmitted to the relevant persons at the right time. However, knowledge management is far much broader than information management. Knowledge management includes integrating information technology, processes, people and leadership to ensure that core competences are created and maintained (Petrides, 2004). People management is crucial to the extent that human capital is the most fundamental resource that can help attain competitive advantage. From a resource-based theory, human capital is defined as the body of skills, expertise, knowledge and experiences the workforce possesses at a particular point in time. Human capital as a resource is rare, inimitable and non-substitutable. Elliott (2003) argues that:”(f)or human resources to be imitated, competitors must be able to identify the exact source of the human capital pool that provides the advantage. . . . the competitor must be able to duplicate exactly both the relevant components of the human capital resource pool and the circumstances under which these resources function.” However, for human capital to yield desired results, leadership organizational culture and control systems must be effective and motivate the workforce towards sustainable productivity. On the other hand, technological systems are crucial information processing and control management. However, technologically-based problem solving approach might be ineffective to the extent that it may fail to incorporate overall organization-wide factors, hence inhibit the institution from successfully utilizing the technology in its utmost capacity. For example, information might be passed to one department prompting the administrator to take certain control actions; however, this might cause conflict or hinder production in other departments since the authorizing department relied on technology alone to make such decision. While this example is simplistic, it shows the importance of collaboration and integration when utilizing information technology systems (Elliott, 2003; Petrides, 2004). Instead of the traditional approach of using information system to control people and behavior, knowledge management treats problems by viewing organizations as entities able to provide diverse meaning to information generated by information systems. Knowledge management integrates people, processes and technology and provides a platform where collaboration and knowledge sharing. Knowledge management uses human-based approach in understanding technology, therefore giving more value to people as drivers and facilitators and users of technology. Knowledge management views the information derived from information systems as intermediate to knowledge which is gained when people use such information to gain knowledge by understanding patterns and trends (Elliott, 2003; Petrides, 2004). Knowledge management therefore combines people, processes and technology hence making organization more competitive, adaptive and profitable. KM strategy encourages information sharing and networking, and therefore motivates the workforce. This is advantageous to the extent that firstly, human capital can only be improved if every worker at all level of the organization has access to knowledge and information. Intellectual stimulation not only shows that leaders trust the workers and thereby motivating them, but it also leads to the adoption of a strong and progressive culture where innovation and creativity become the main drivers of productivity in the organization. Secondly, knowledge sharing, collaboration and networking promote effective communication in the organization. This helps in goal congruence by reducing conflict and more importantly ensuring that employees and all members understand and appreciate the organization’s vision, goals and objectives (Elliott, 2003; Petrides, 2004). Knowledge management and leadership According to Samson and Daft (2009), leadership refers to influencing people towards a certain end or desired direction. Leadership is a critical part of business and to a large extent influences the direction, culture and organization’s competitive advantage. Knowledge management leadership advocates for continually revising organizational strategies and goals to meet current demand and conform to market dynamics. Adaptability to the discontinuous market environment is critical for success. In this regard, relying on information and current knowledge not only helps leaders steward the organization towards profitability but also helps in the maintenance of competitive advantage. The style of leadership sets the tone in every aspect of the organization. Boulding (2007) studied over 75 components that entail leadership and found out that trust and confidence in leadership are the most significant. The investigation also revealed that effective communication between leaders and employees is the leading factor in promoting effective communication. Knowledge management is a crucial aspect of leadership to the extent that it determines effective communication in the organization. KM strategy advocates for participative style of leadership where team approach to issues is adopted rather than a top down authoritative style of leadership. Moreover, adopting a learning culture where training and development, workshops and seminars are frequent can not only help in adding new knowledge but it will also help leaders ensure that employees understand and appreciate the organization vision and direction (Samson & Daft, 2009). Knowledge management plays an important role in change and conflict management. Effective knowledge management will help leaders introduce relevant change at a timely manner, and change or upgrade existing structures to meet current needs. Knowledge management helps leaders anticipate changes in customer taste and preferences, policy changes or political and regulatory changes, and prepare in advance for a smooth transition to change in the organization (Samson & daft, 2009). Conclusion In conclusion, knowledge management refers to continual processing of data and information into relevant knowledge that can be used to enhance adaptability and competence in the organization. Knowledge management improves every aspect of the organization including profit maximization, organizational excellence, creation of strong progressive culture and ultimately creation and maintenance of competitive advantage. As discussed above, knowledge management plays a critical role in adapting with today’s consumer market. Given the change in taste and preferences, emergence of new products and increased competitiveness in the market, knowledge management can help businesses nurture customer loyalty and thus maintain and even expand their market share. Secondly, knowledge management is superior to technologically driven and process driven management approach to the extent that it is more about the people. Technology can easily be stolen or imitated and processes can easily be copied. This makes the two approaches unsustainable especially in the increasingly competitive world. However, knowledge management focuses on people management mainly because human capital and the workforce knowledge base are unique, rare and not easily imitated. To this end, sustainable competitive advantage is created because by building on the people, culture and human resource, organizations can gain competitive advantage and thereby attain their short term and long term objectives as they work towards their vision. In recent times, competition, globalization and technology advancement has greatly changed the business environment. Traditional critical success factors have to an extent been rendered obsolete in as far as creation of competitive advantage is concerned. However, the discussion above shows that shifting the focus on strategies such as knowledge management can help convert a business for sustained profitability and maintenance of competitive advantage. References Bolland, D., Morrison, D. & O’Neil, S. (n.d.). The future of CRM in the airline industry: A new paradigm for customer management. IBM Institute For Business Value. Retrieved 22 August 2011, from http://www.suntransco.com/data/upload_file/File/Online Library/CRM_Airline_GE510_3235_01F.pdf Boulding, K. (2010, November 28). Concepts of leadership. Retrieved 21 August 2011, from http://www.nwlink.com/~donclark/leader/leadcon.html Elliott, H.G.H. (2003). SHRM Best-Practices & Sustainable Competitive Advantage: A Resource-Based View. Retrieved 22 August 2011, from http://www.business.otago.ac.nz/mgmt/research/omgr/03elliott1.pdf Firestone, J.M. (1998, June 24). Basic concepts of knowledge management. Executive Information Systems, Inc. Retrieved 24 August 2011, from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.126.3639&rep=rep1&type=pdf Firestone, J.M. (2001, April 15). Estimating Benefits of Knowledge management initiatives: Concepts, methodology, and tools. Knowledge and Innovation, 1(3), Knowledge Management Consortium International, Inc. Retrieved 24 August 2011, from http://www.kmci.org/media/KMBenefitEstimationrev1.PDF Halawi L, Aronson J. & McCarthy, R. (2005). Resource-Based View of Knowledge Management for Competitive Advantage. The Electronic Journal of Knowledge Management, 3(2), pp. 75-86. Lampton, B. (2003). Paragon of customer service excellence: The Ritz-Carlton Hotel Part I. Retrieved 22 August 2011, from http://www.expertmagazine.com/EMOnline/RC/part1.htm MacStravic, S. (2004, June 10). Knowledge management and CRM. InsideKnowledge. Retrieved 22 August 2011, from http://www.ikmagazine.com/xq/asp/txtSearch.CRM/exactphrase.1/sid.0/articleid.EFFB281B-44FA-4A45-965D-24AA8AD50E48/qx/display.htm Marquardt, M. (1996). Building the learning organization. New York, NY: McGraw-Hill. Petrides, L.A. (2004, September 28). Knowledge management, information systems and organizations. EDUCAUSE, 2004(20). Center for Applied Research. 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