Organizational Performance and Competitive Advantage - Term Paper Example

KNOWLEDGE MANAGEMENT ORGANIZATIONAL PERFORMANCE AND COMPETITIVE ADVANTAGE Item Page 1.0 Executive Summary 3 2.0 Terms of Reference 4 3.0 Introduction 5 4.0 The link between Knowledge Management (KM), Organizational Performance (OP) and Competitive Advantage (CA) 6 5.0 How internal and external network structure encourage knowledge 8 Creation and sharing 5.1 Customer Knowledge 5.2 Knowledge in Products and Services 5.3 Knowledge in People 5.4 Knowledge in Processes 5.5 Organization Memory 5.6 Knowledge in Relationships 6.0 Skills and behavior of Team leaders that promote knowledge creation 10 And sharing 7.0 Barriers to effective knowledge management and how these can be overcome 13 7.1 Technology 7.2 Organization 7.3 People 8.0 Conclusion 14 References 1.0 Executive Summary The report reviewed literature on knowledge management and the extent to which it influences organizational performance and competitive advantage. It was established that linkages exist among the three parameters. Some of the factors that affect the full realization of the benefits of knowledge were also given. In most pursuit of knowledge management at the organizational level, networks structures are created. The extent to which these networks contribute in creation and sharing of knowledge was considered under six main areas. These are customer knowledge, knowledge in products and services, knowledge in people, knowledge in processes, organizational memory and knowledge in relationships. .From the organizational level, the report moved down the ladder to that of the team and considered the skills and behavior of team leaders that promote knowledge creation and sharing. The report retraced its step back to the organization and considered issues pertaining barriers. Often, it has been observed that the objectives set for knowledge management are not achieved. The barriers responsible for this development were thoroughly discussed under three main heading, technology, organization and people. In conclusion, the report pointed out the whereas linkages exist among knowledge management, organizational performance and competitive advantage, but the link is progressional. Other factors impinge on the process which must be addressed, if benefits of the knowledge management can be optimized in the organization. 2.0 Terms of Reference In bid to maximize Epsilon Company’s intellectual assets for sustained competitive advantage, the Operations Manager was tasked to prepare a business report on Knowledge Management for consideration by the Managing Director (MD). Specific Issues the report was to address were: (i) the link between knowledge management, organizational knowledge and competitive advantage (ii) the barriers to effective knowledge management and how these could be overcome (iii) the extent to which internal and external network structures can encourage knowledge creation and sharing (iv) the type of skill sets and behavior the company’s team leaders need to promote knowledge creation and sharing. The report was to be submitted after three working days. 3.0 Introduction Knowledge management and organizational knowledge have been accorded increased importance in recent years by many firms (Malhotra, 2003). The reasons for this development are not difficult to find. Knowledge has become a good source of competitive advantage. Increasingly also, most economies are becoming knowledge-based. Companies that position themselves properly to create and share knowledge resources, can gain unparalleled advantage other their counterparts which do not. Gratton (2000) has pointed out that of all the resources available to a firm, it is only knowledge vested in its human resources that give competitive advantage on a sustainable basis. According to this author, financial capital is no longer scarce and technology can also be easily imitated. It is people that do bring and sustain competitive advantage to companies. How then can an organization get its staff contribute knowledge in its bid to increase its intellectual assets, performance and competitive standing?. The answer lies in not only creating new knowledge but also in sharing and converting personal knowledge into an organization one. Mention was made about clear cut disparities in the performance of the different teams at Epsilon Company. Team A recorded excellent performance, whereas Teams B and C underperformed. In a well functioning knowledge-management environment, the results of team A should provide invaluable guidelines for improving teams B and C environment. However, such benefits can not be leveraged, unless this knowledge is shared and acted upon. Knowledge management, the subject matter of this report makes this possible. 4.0 The link between Knowledge Management, Organizational Performance and Competitive Advantage Knowledge Management has been defined in different ways by several research workers. The Economic Intelligence Unit (2005) defined it as a range of strategies and tools used to capture valuable knowledge and delivered to other people who can benefit from it. (), on the other hand, reported that Knowledge Management is any process or practice of creating, acquiring, capturing, sharing and using this knowledge, wherever it resides to enhance the learning and performing in organizations. However, Molhotra (2003) has pointed out that it is best to confine such understanding to a disciplinary field and not as a technological solution. Whichever way one looks at the subject, it is the expectation of its adopters that it should lead to better performance, both at the personal and organizational levels. But, in practice, does knowledge management always lead to better organization performance? Available literature presents conflicting results on the contribution of knowledge management to organizational performance. The Economist Intelligence Unit (2005), for example cited Schlumberger Company’s “In Touch” knowledge management program, which gave a return on investment of over 200 million dollars after just one year of implementation. Similar studies carried out on an industry wide scale, by Darrell et. al (2002) and cited by Malhotra (2005) revealed high failure rates for knowledge management related technology implementation and related applications. The poor results were attributed principally to implementation problems. On the face value, it may be difficult to accept such negative results. Knowledge has become a valuable asset in this new economy. The more knowledge an organization has and the better that resource is managed, the better should that organization become. If higher investments in knowledge management tools and solutions do not lead to better organizational performance, what are the missing links? Is it that the knowledge technologies adopted were not appropriate or the way and manner in which outputs from the investments were handled? There are several factors that impinge upon the performance of an organization. Technology is just one of them. However in practice, it has been observed that whenever mention is made of knowledge management at the organizational level, the focus is often placed foremost on technology. Technology needs people to operate them and these people work in organizational environments that are far from simple. Thus, it is important for the working context of the users of the technology to be understood adequately and shaped into a form that enables the changes being introduced to thrive. Otherwise, the knowledge management systems may not be effectively utilized by the organization (Malhotra, 2001). Quite apart from the set up, the organization should also clearly define its business needs and the kinds of knowledge required to fulfill them before consideration is given to technology (The Economist Intelligence, 2005). Without clearly defined goals for technology, it is most unlikely that higher investments in knowledge systems would lead to appreciable improvement in organizational performance. Another area of the organization that affects its performance, for which critical consideration should be given, is the extent to which knowledge management outputs are utilized. If there is no concrete implementation procedures for converting outputs into value or wealth that could also have a toll on organizational performance. To this end, it is important for metrics to be established to periodically assess quantitatively how outputs are being used to bring value to the organization. Porter (2001) has given two distinct ways by which a company can gain competitive advantage in the industry it operates. These are (i) lowering costs and (ii) differentiating oneself. Knowledge management systems can be used in part to achieve these objectives. However, it must be pointed out that apart from knowledge systems the company should also possess the necessary industry attractiveness. In conclusion, it can be said that knowledge management can improve organizational performance and in turn competitive advantage. However, the progressional link is not automatic. In addition to knowledge management, the organization should create the needed culture and processes and also devise effective strategies if maximal outcome are to be gained. 5.0 How internal and external network structure encourage knowledge creation and sharing Skyrme (1999) has given six strategic areas that internal and external network structures can encourage knowledge creation and sharing in an organization. These are (i) customer knowledge (ii) knowledge in products and services (iii) knowledge in people (iv) knowledge in processes (v) organizational memory and (vi). The extent to which network structures impart knowledge creation and sharing in these major areas is discussed. 5.1 Customer knowledge Knowledge tools such as customer relationship management (CRM) and customer analytics softwares and also marketing research enable companies to learn a great deal about their customers. Companies whose network structures are able to cover this area adequately stand to profit massively from such undertaking. A recent survey of the Economist Intelligence Unit (2005) has demonstrated how, for example, customer analytics can be used to support initiatives that increase customer loyalty and expand one’s market share. 5.2 Knowledge in products and services The internal and external networks structures of organizations create and hold vast amounts of knowledge through their product and service offerings (Skyrme, 1999). Such knowledge includes those in applications, specific markets and users. Some companies convert these knowledge sets into products, user guides, manuals and databases. If properly harnessed and exploited, these knowledge resources can be important sources of wealth to the organization. 5.3 Knowledge in people Through the setting up of open learning centers, creation of databases of learning resources, organizations nurture and develop the knowledge base of their staff. Knowledge systems and tools such as intranets, video and computer videoconferencing, internet and intranets, groupwares, the knowledge acquired by staff can be shared with others. Other means through organizations such as Epsilon company leverage tacit knowledge of their staff is through the establishment of bulletin boards, web logs and wikis. However, such facilities should be responsibly used to promote organizational good. 5.4 Knowledge in processes Companies are able to harness knowledge in processes through integrated hosted services, utility computing , on-demand computing and workflow softwares (Skyrme, 1999., Malhotra,2005) Useful knowledge gained can be processed into forms that benefit staff as well as partners. 5.5 Organizational Memory Organizational memory represents knowledge contained in the organizations ‘staff, systems and documents. Some of tools used in capturing some of this information have already been mentioned. Others include data management systems, decision diaries, websites and pages, among others. 5.6 Knowledge in Relationships In the process of developing products and services, companies forge partnerships with customers, suppliers and trade associations. Knowledge tools such as enterprise resource planning (ERP), electronic data interchange (EDI), loyalty cards, and etc enable invaluable information to be created that can be shared. Other collaborative technologies such as group decision support systems (GDSS), video and PC conferencing, help achieve the same purpose both internally and externally. 6.0 Skills and behavior of Team leaders that promote knowledge creation and sharing Team leaders should be good visionaries. This would enable them determine the knowledge requirements needed to give their teams distinct competitive advantages in their fields of endeavor. They should also be able to organize their teams for knowledge creation and sharing. This demands that they should have skills for facilitation and coaching. Team leaders should also create a working environment that is highly competitive and yet supportive. Team members should be encouraged to share creative ideas of whatever sort. In doing so, the contribution of each member should be valued. Negative criticisms that stifle knowledge sharing should be discouraged. Achievements of the team should also be owned collectively. Companies with highly productive teams have such working ethics and environments. Team leaders should also be able to obtain needed resources for their team. There is no way; a team can function effectively, if its programs remain unfunded. 7.0 Barriers to effective knowledge management and how these can be overcome Barriers that hinder effective management of knowledge in organization can be categorized into three as follows. Those that fall under (i) Technology (ii) Organization and (iii) People 7.1 Technology Technology issues that hamper effective knowledge management in an organization can be categorized into three, namely (i) total lack of new knowledge management systems in the organization (ii) knowledge systems that can be considered as inappropriate to the organization and (iii) ineffectual use of knowledge outputs. These three sources of technology problems are entirely different and require different approaches to solving them. A company may lack the needed resources to procure technology tools and solutions for managing its knowledge resources. Companies in this category can be described as not having begun the journey in knowledge management. This is the worst case scenario. The test company, Epsilon has passed this level because it has in place an information and communication systems. A problem such as this requires technology investment to be made, however small that may be. An organization with inappropriate technology cannot be expected to optimize its knowledge management. Such a development can affect its performance adversely. A problem of this sort can arise from the wrong choice of technology or existing systems that are no longer compactible with new knowledge needs of the company. This problem demands a review of the organization’s business needs and the adoption of knowledge systems that can best satisfy them. The third situation, relates to technology that can be considered appropriate but are not effectively serving the needs of the organization. This is the problem that confronted Epsilon Company. This problem requires the company’s information needs to be prioritized and existing technology tailored to meeting them. The extent to which outputs are implemented may also demand consideration. 7.2 Organization Organizational barriers that hinder effective knowledge creation and sharing could be rooted in its culture, business processes and organizational structure. It is often difficult, if not impossible, for an organization’s knowledge management to be made effective, if the prevailing culture does not support it. In practice, it has been found that barriers of such sort are more difficult to deal with than those pertaining to technology. The solution to this problem lies in creating and nurturing a culture that encourages knowledge creation and sharing. Ineffective processes can unduly delay knowledge generation and sharing to the extent that the value of knowledge is not optimized. This problem may require business processes to be streamlined to make knowledge management more effective. It may also be worthwhile for appropriate metrics to be introduced to scientifically assess how the company is benefiting from the process. Organizational structure can be a limitation to knowledge creation and sharing, if activities of individual departments and business units are overly concentrated. This problem may require structural re-engineering in the organization to enable information flow seamlessly through the system. 7.3 People For companies that operate in a multi-cultural environment, language problems can be a limiting factor to effective knowledge management. Fear of losing one’s profile when information shared is later found to be incorrect can hinder the process. Lack of training in using available knowledge management tools is also another people-based problem. At the personal level, knowledge can be a competitive asset to some people in organizations. As such, if there are no organizational incentives they may not willing to hand over their advantage to others in the organization. In devising strategies for knowledge management, the needs of present and future human resources should be taken into account. The organization should opt for systems that are user friendly. It should also make adequate provision for training of staff in the use of knowledge management systems and tools. 8.0 Conclusion The report has shown that linkages exist between knowledge management, organizational performance and competitive advantage. However, this progressional link is not automatic. As such, any company that seeks to utilize knowledge management as a tool for improving its performance and also competitive standing must in addition shape its culture and processes to accommodate the changes such a technology may bring to the organization. It must also remove any barriers as they pertain to technology, the organization itself and its people. If knowledge management systems are wholeheartedly embraced, the benefits to that organization in performance and competitive standing terms can be enormous. REFERENCES 1. Gratton, L. (2000). Living Strategy –Putting people at the heart of corporate purpose, Pearson Education Ltd, United Kingdom. 2.Malhotra, Y. (2001). Organizational Controls as enablers and constraints in successful knowledge management systems implementation, In Y. Malholtra (Ed.) Knowledge management and Business model innovation, Idea Group Publishing, Hersley, USA. 3.Malhotra, Y. (2003). Is knowledge the ultimate competitive advantage? Business Management Asia, 3(4):66-69. 4. Malhotra, Y. (2005). Integrating knowledge management technologies in organizational business processes: getting real time enterprises to deliver real business performance. Journal of Knowledge Management 9(1):7-28. 5. Peter, M.E. (2001). Competitive Advantage: Creating and sustaining superior performance, 6. Skyrme, D.J. (1999). Knowledge Networking – Creating the collaborative enterprise, Butterworth-Heinemann, Great Britain. 7. The Economist Intelligence Unit (2005). Know How: Managing Knowledge for Competitive advantage, Material retrieved on Read More