Knowledge Management and Enterprise Performance - Literature review Example

Introduction Companies and big corporations today are increasingly faced with the dilemma of managing change and innovation within their corporations as these are considered as an integral part of their duties. The manager’s tasks span from planning, making decisions, leading and organising groups of people to work together productively towards achieving clear goals or objectives set by the shareholders (Dixon, 2002). According to Stephens P. Robins and Mary Coulter (2002a), change is an organisational reality and can be viewed as that part of every managers job that involves a series of complicated issues as it is all about making alterations in people, structure, and technology. They view change as being that break in an organisations state and this change is influenced by both external and internal factors. External factors that give that push to organisations to start change include: Customers have increased complex patterns and desires that are pushing companies to constantly seek new ways at meeting their desires. In many cases these consumer desires are not only affecting the company share price, but at same has a significant effect on shareholders wealth. So as to meet these desires, managers too are working day and night with new technology and Research and Development (R&D) budgets are on the increase. With the increase call for environmental awareness, most companies are today fighting to go green. Government’s regulations have increasingly forced companies to respect the existing legislations and new legislations are being enacted everyday to force compliance from companies. This has a great effect on companies as they too have to come up with changes as to meet legislation in their various countries and areas of operation. With the world now almost a global village, competition amongst competing companies is on the rise with many having to increase their R&D budgets on technology. Many companies are fast moving from their old ways of doing business to the new ways of doing business and increasingly using new technology, such as computers and developing new software (Holsapple C.W, Joshi K.D, 2000). A perfect example is Microsoft Corporation, which has over the past years developed different types of software so as to stay top among its competitors. Therefore to stay and maintain her position in software manufacture, Microsoft has to change towards the new technologies and invest more on R&D and innovation. According to Gallivan et al (2003a) economic uncertainties and market volatility has characterised financial markets in the past years. This has pushed some companies to incur huge losses due to either currency translation or transactions as many of them have offices scattered around the world. With these, many companies really need to increasingly use new technologies to avoid such future embarrassments. Internal factors in companies that also necessitate change include: The line of business in which the company is involved most often requires that such companies have to change their mode of operation if they want to remain attractive and to maintain their market position. Some changes are forced on companies due to the strategies that the company may use to achieve the goals set. In case where the company is using many more new technologies, change is also required. The attitude of the workers too may also necessitate change as may require in service training to make their employees meet up with the standards required. At the end of the day, managers are widely looked at as the change agent through the use of Knowledge management. This is because they are those who should initiate any changes, thereby acting as acting as that catalyst for change and assume responsibility for such changes. Some even go as far as using the services of consultants to carry out wider and drastic changes (Darroch, J. 2005). According to Stephens and Mary (2002b), Innovation is that process of combining creativity and ideas into a useful idea for operation. This paper will use Microsoft corporation success story to show how the company has been able to manage knowledge through managing innovation and creativity to successfully place itself as the top computer software provider for decades. History of Microsoft Corporation Microsoft Corporation’s history can be traced as far back as September 15th, 1975 from the ideas of Paul Allen and Bill Gates. These two gentlemen’s ideas can be drawn as far back as the days of Dr. John G. Kemeny and Thomas Kurtz, who in 1964, at Dartmouth, in a view of trying to find out a simplified computer language to teach students on how to programme came up with “Beginner’s All – Purpose Symbolic Instrument Code, (BASIC)”.1 History holds that, the world’s first minicomputer was developed by the “Hobbyists”, who were considered to be the first entrepreneurs. The Hobbyists all over the USA, in trying to put up their first minicomputer that will rival the existing commercial models, tried to put pieces together of systems found in electronic shops, “Micro Instrumentation and Telemetry Systems, (MITS)” of Albuquerque, New Mexico, announced the MITS Altair 8800 on the cover of the 1st January 1975 issue of Popular Electronics. The history of Microsoft continues that, Allen, who as an employee of Honeywell and his friend Bill Gates, a sophomore at Harvard at that time, recognized that the limitations of the compact design of BASIC (extreme restricted memory and processing power) made it ideal for them to create the first personal computers. They immediately set out to adapt BASIC for their machine, working in a marathon 24-hour sessions, and by working day and night, they created the first complete version of MICROSOFT BASIC for the Altair on January 2nd, 1975, by “using the Altair's published specifications, Gates and Allen created a simulator on a DEC PDP-10 computer that allowed it to emulate the MITS machine”. After the creation of the computer software by Allen and Gates, on January 3rd 1975, Paul Allen joins MITS (Micro Instrumentation and Telemetry Systems) as Director of Software, and Gates followed him later that year to form an informal partnership called Micro-soft, complete with hyphen. The name/word Microsoft never appeared or used until in November 29th 1975, when Bill Gates used the name "Micro-soft" for the very first time in a letter to Paul Allen, in reference to their (60/40) Partnership. BASIC went through changes and innovation in a bit to come up with a more complete computer software that could be used by many through the years and on July 1st, 1976, Microsoft refined and enhanced BASIC and sold to big companies including DTC, General Electric, NCR, and Citibank. With this transformation and innovations, Paul Allen resigned from MITS on November 1st 1976 to join Microsoft full time and the tradename "Microsoft" became registered with the Office of the Secretary of the State of New Mexico on November 26th, 1976 "to identify computer programs for use in automatic data processing systems; pre-programming processing systems; and data processing services including computer programming services." The application indicated that the name (Microsoft) had been in continuous use since November 12th, 1975. Definition of Knowledge Management According to Malhotra (1998), Knowledge Management (KM) is a process that “embodies organisational processes that seek synergistic combination of data and information processing capacity of information technologies, and the creative and innovation of capacity of human beings”. Microsoft has from 1975 to 2009 been at the centre of a system of continuous innovation. Looking at Microsoft’s income statement, one realises that the company has in the past invested much in Research and Development so as to meet this target. The cost of R&D has been on the rise from 2002 – 2009 from $6,299 million to $9,010 million while at the same time, sales and marketing expenditures have increased from $ 6,252 million in 2002 to $ 13,260 million in 20092. This shows that at the fore front of Microsoft’s innovation, is her employees. As of June 30, 2009, Microsoft employed approximately 93,000 people on a full-time basis, with 56,000 of these employees based in the United States and 37,000 internationally. Out of this total, of 93,000 employees, 36,000 were in product research and development, 26,000 in sales and marketing, 17,000 in product support and consulting services, 5,000 in manufacturing and distribution, and 9,000 in general and administration with none of these employees on a collective bargaining agreement.3 Motivating the personnel of Microsoft even with the downturn in financial markets was still at the core of their innovation. From their Annual report of 2009, it can be realised that general and administrative expenses saw a decrease by $1.4 billion or 28%, primarily due to decreased costs for legal settlements and contingencies, sales and marketing expenses decreased $381 million or 3%, primarily driven by the resource management program that will see a reduction in discretionary operating expenses, employee headcount, and capital expenditures and an elimination of up to 5,000 positions in research and development, marketing, sales, finance, legal, human resources, and information technology by June 30, 2010. But despite all these decreases envisaged, Microsoft still believed in the use of employees to keep up with innovation, reasons why headcount-related expenses, excluding $330 million of employee severance charges, increased by 7%, driven by a 2% increase in headcount during the past 12 months and an increase in salaries and benefits for the already existing headcount. Therefore, Microsoft has despite all the odds faced in financial markets, still believes that the wellbeing of her employees is their success, reasons why they were able to provide an increase in salaries despite the down turn and fall in revenues from the sales of Windows operating systems reflected by the PC market weakness, especially as PCs sold to businesses declined due to the financial meltdown that saw most businesses cut down costs, and a decline in the OEM premium mix. In any organisation, it is hard to draw a distinct line between the use of technology and the organisation. According to Orlikowski and Iacono (2000), organisational changes associated with the use of technologies are often shaped by human actions and choices; therefore, to understanding what these technologies mean the organisation must start by understanding why people engage in it overtime. Organisations over the past decade have become more concerned on managing their intellectual resources that is persons and information systems (Carneiro, A. 2001) and organisations have increasing used personal computers and communications networks to obtain a better competitive position. This has led to great advances in IT and improved KM processes, for many of these processes are contained in systems that are used to measure and monitor to ensure rigorous quality and cost control. Microsoft for years has enjoyed monopoly in software industry. The stability of top management at Microsoft can in part be part of their innovation and their success in managing the changes and innovations that the company has witnessed in the past. In 1998, Steve Ballmer was appointed as president of Microsoft replacing Bill Gates, who had occupied the position for years, with the intention to broaden the leadership of the company and better position the company to take advantage of future growth opportunities meanwhile Bill Gates continues as chairman and CEO, and will focus more time on Microsoft's long-term planning and working with the development teams to devise the technologies and products of the future. Ballmer's new responsibilities were to include boosting the business discipline and performance of all Microsoft's existing and emerging businesses as well as improving customer satisfaction. In 2000, Bill Gates created a new role for himself as chairman and chief software architect at Microsoft so as to dedicate all of his time to helping drive the next-generation Windows Internet platform and services, while Steve Ballmer becomes president and CEO, and will take over management of the company. The advantage here is, Bill Gates was at the origin and conception of the ideas that saw Microsoft Corporation. This gives Microsoft that edge to continuously develop and come up with new innovations. Innovations at Microsoft Year Description 1976 Microsoft develops its first ad campaign, called "The Legend of Micro-Kid”. Bill Gates delivers his first address at the first World Altair Computer Convention (WACC) in Albuquerque, aged 20. 1977 A formal partnership agreement is reached between Paul Allen and Bill Gates with Gates as President and Allen Paul Vice President. Their main product remains BASIC, but tied up with MITS, which agreed to make a "best effort" to license it to other companies. 1978 Microsoft COBOL-80 (considered to be have carried innovation beyond BASIC), Microsoft third language product is launched and Microsoft’s first International office is opened in Japan. 1979 Microsoft releases its first resident high-level language machine for use on 16-bit machines of the Microsoft BASIC for the 8086 16-bit microprocessor that the beginning of widespread use of these processors. At the same time, Microsoft working closely with NEC and its PC-8001 computer extends its worldwide effort of working closely with computer manufacturers in the development of hardware into the European Market by signing with Vector International, based in Haasrode, Belgium as their representative. 1980 Microsoft XENIX OS, a portable operating system for 16-bit microprocessors is announced intended to serve as an interactive, multi-user, multi-tasking system that will run on Intel 8086, Zilog Z8000, Motorola M68000, and DEC PDP-11 series and for which all of Microsoft's existing system software (COBOL, PASCAL, BASIC and DBMS) will be adapted to run under the XENIX system, and all existing software written for UNIX OS will be compatible as well. 1990 The new Advanced Technology group is established for research and product development, with the introduction of windows 3,0 version that offers dramatic performance increases for Windows applications 1991 Microsoft announces Excel for Windows 3.0, Microsoft Visual BASIC for Windows, Multimedia Edition and BallPoint Mouse saw the day of light and at the same time Microsoft’s international operations are reorganized with Europe divided into three regions, and the rest of the world into four (consisting of the Far East, Intercontinental, Latin America, and AIME). 1993 Microsoft comes up its first software products (Creative Writer and Fine Artist) designed for children. This software combines full-featured tool sets such as, lively characters and offbeat humour, designed to inspire and stimulate children's natural creativity in writing and art with many engaging project ideas. 1995 A new version of windows that was originally coded “Chicago” is announced as Windows ’95. This new version of Windows features a new user interface and a "plug and play" design that makes hardware setup automatic and when a customer upgrades to Windows 95, performance will meet or exceed performance of Windows 3.1. 1997 Microsoft announced Office ’97 and Internet Explorer 4.0 2000 Microsoft launches Windows 2000 and Microsoft Windows Millennium Edition (Windows Me). 2001 Microsoft Windows XP is released worldwide 2008 Microsoft launches Windows Vistas 2009 Microsoft launches Windows 7, and Microsoft Office 2010 Source: http://www.thocp.net/companies/microsoft/microsoft_company_part2.htm Knowledge management and Enterprise performance KM has been seen to be the core of any enterprise success, for it can be seen as the core of enterprise competitiveness and is at the fore front of an enterprise strategy. According to Beckett A.J et al (2000), in large stable process industries, process capability knowledge is the primary source of advantage, whereas for the medium-sized enterprise, in addition to process capability knowledge, this may include market knowledge, rapid product development, or the continual discovery of new processes via research. By using knowledge management, the enterprise is able to create those conditions under which their competitive advantage can be maintained, through acquiring, retaining and exploiting the knowledge identified by the organisation. But Gallivan et al (2003b) believes that the greatest challenge for KM is the transition to a knowledge-based economy especially with the increasing importance of the concept within modern day enterprises. Current strategic management theory highlights the value of any firms’ knowledge assets to include both intellectual property and other forms of know-how. Therefore, for firms that expect to survive and prosper in the global twenty-first century must implement effective processes for managing the knowledge assets. While there exists tremendous interest in knowledge management (KM) and knowledge management systems (KMS) today, “the present cacophony on KM” it is important to distinguish this at the conception stage of different objectives to be pursuit by the enterprise. Conclusion Customer needs have become more complex as days go coupled with extensive market competition has helped in pushing many organisations to reconsider the ideas on innovation (Cavusgil et al, 2003). The complex nature of innovation has also been increased by growth in the amount of knowledge available to organizations as the basis for innovation. Increasingly, innovation is even becoming more dependent on the availability of knowledge and therefore the complexity created by the explosion of richness and reach of knowledge has to be identified and managed to ensure successful innovation (Marina du Plessis, Lyttelton, NN). According to Parlby and Taylor (2000) knowledge management is about supporting innovation to generation of new ideas that can be used in the exploitation of an organization's thinking power. The authors further re-iterate that knowledge management can be used to capture the insight and experience to make the new ideas generated available and useable when, where and by whom it is required. At the same time, knowledge management provides access to expertise and know-how, whether it is formally recorded or in someone's mind to be exploited and further allows collaboration, knowledge sharing, continual learning and improvement within the organization and individuals. KM underpins better quality decision-making and ensures that the value and contribution of intellectual assets, as well as their effectiveness and their exploitation, is well understood by both the individuals within the organisation. Microsoft at the end of the day will still remain at the top of innovation and change for a long time to come. View the fact that the company has been able to maintain stability at management level, and has been able to make profits at the very hard financial meltdown, and is increasingly entering into partnerships with other companies, such as Nokia, and its recent Yahoo id, this means that, they will be able to carefully control the market for technology and impose themselves once more at the top. Bibliography Beckett A.J, Wainwright Charles E.R, & Banes David (2000), Implementing an industrial continuous improvement system: a knowledge management case study, Industrial Management & Data Systems Vol. 100 No. 7 pp 330-338 Caneiro, A. (2001), The role of intelligent resources in knowledge management. Journal of Knowledge Management, Vol. 5, No 4, pp 358-367 Cavusgil, S.T., Calantone, R.J., Zhao, Y. (2003), "Tacit knowledge transfer and firm innovation capability", Journal of Business & Industrial Marketing, Vol. 18 No.1, pp.6-21 Darroch Jenny (2005), Knowledge Management, innovation and firm performance, Journal of Knowledge Management, Vol. 9 No. 3 pp 101-115 Gallivan Michael J, Eynon Jim, Rai Arun (2003), The challenge of knowledge management systems: Analyzing the dynamic processes underlying performance improvement initiatives. Information Technology and People, Vol. 16 No 3 pp 326-352 Holsapple C.W & Joshi K.D (2000), An investigation of factors that influence the management of knowledge in organizations, Journal of Strategic Information Systems, Vol. 9 pp 235-261 Malhotra Y. (1998), Deciphering the Knowledge Management Hype. Journal of Quality and Participation, Vol. 21, No 4, pp 58-60 Marina du Plesis, Lyltton (NN): The Role of Knowledge Management in Innovation Orlikowski, W.J. and Iacono, C.S. (2000), “The truth is not out there: an enacted view of digital economy”, in Brynjolfosson, E. and Kahin, B. (Eds) Understanding the Digital Economy, MIT Press, Cambridge, MA, pp. 352-380 Parlby, D., Taylor, R. (2000), "The power of knowledge: a business guide to knowledge management", available at: www.kpmgconsulting.com/index.html, . Rob Dixon (2004): The Management Task. Elsevier Butterworth Heinemann, 2nd Edition Stephen p. Robins and Mary Coulter (2002): Management. Prentice Hall, 7th Edition Websites consulted http://www.microsoft.com/msft/financial/default.mspx, retrieved online on 27/11/2010, at 13,30pm http://www.microsoft.com/msft/reports/ar09/10k_fr_bus_06.html, retrieved online on 27/11/2010 at 19,29pm Retrieved online at: http://www.thocp.net/companies/microsoft/microsoft_company.htm, on 26/11/2010, at 08:49 Read More