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Theme 12

Knowledge Assets

Management

Sang W. KIM, Ph.D

Professor, Chungbuk National University

[email protected]

2016

본 자료에 수록된 내용을 무단 사용할 경우 저작권법에 위반됩니다.

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contents

1. Four Types of Knowledge Assets

2. Intellectual Capital Management

3. Organizational IQ

목 차

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Experiential knowledge assets :

Tacit knowledge that is built through shared hands-on experience among a firm's

members and between them and its customers or suppliers.

(Ex: Skills and know-how acquired and accumulated through work experiences )

Other examples include:

Affective knowledge (e.g., care, love, and trust),

Motor knowledge (e.g., facial expressions and gestures),

Energic knowledge (e.g., enthusiasm and tension),

Rhythmic knowledge (e.g., improvisation and entrainment).

Because experiential knowledge assets are tacit, they are difficult to capture,

evaluate, or exchange for money.

Only through their own experiences can firms accumulate their own experiential

knowledge assets.

Their tacitness makes experiential knowledge assets firm-specific and difficult-to-

imitate resources that provide a sustainable competitive advantage to a firm.


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Conceptual knowledge assets :

Explicit knowledge articulated into words numbers, and diagrams.

Concepts that are held by members of a company and its customers.

(Ex: corporate strategies, product concepts and designs which are possessed by

members of the company, and brand equity which is perceived by customers).

Since they have tangible forms, conceptual knowledge assets are easier to see than

experiential knowledge assets. Still it is difficult to measure customers' and

organizational members' perception.


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Systemic knowledge assets :

Systemized and packaged explicit knowledge.

(Ex: manifestly-stated technologies, product specifications, manuals, and

documented and packaged information about customers or suppliers).

Legally protected intellectual properties such as licenses and patents also fall into

this category.

Since they are most “visible” and easily digitized into IT, current knowledge

management practices focus primarily on them. Also, they can be traded and

transferred with relative ease.


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Routine knowledge assets :

Tacit knowledge that is embedded in organizational daily practices and actions.

(Ex: know-how (e.g., those in various corporate functions), organizational routines

and cultures as certain patterns of thinking and action that are shared among

organizational members and reinforced by daily activities).

Sharing narratives and stories about their own company also helps form routine

knowledge assets.

Note that the routine nature may become inertia and hinder the knowledge-creating

process .


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What is Intellectual Capital?

“Intellectual material - knowledge, information, intellectual property and

experience - that can be put to use to create wealth”

– Thomas Stewart

“Representation of the financial value that human innovations, inventions, and

intelligence bring to a business enterprise.”

Source: H.P. Agency


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Intellectual Capital Knowledge with potential for value

Example: Ideas in people, processes and customers

Intellectual Assets Knowledge providing value

Example: Implemented know-how

Intellectual Property Knowledge articulated with legal ownership

Examples: Patents, trademarks, trade secrets and copyright


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“In many cases, knowledge firms such as Microsoft, Xerox, Dow Chemical,

Hewlett-Packard, Eastman Chemical and others have their marketplace value

at a price far higher than their balance sheets warrant”

- Sullivan

“A company’s value is more than the tangible assets, the source of its value

and wealth is no longer the production of material goods but the creation and

manipulation of its intangible assets”

- Goldfinger


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Skandia Concept of Intellectual Capital

Market Value

Financial Capital value of all physical and monetary assets

Intellectual Capital

Human Capital

‘thinking’ • competence (knowledge and skills)

• attitude (motivation, behaviour, conduct)

• intellectual agility (innovation, imitation, adaptation)

Structural Capital

‘non-thinking’

Customer (Relationship) Capital customers, suppliers, shareholders,

alliance partners, other stakeholders

Organisational Capital • infrastructure

• processes

• culture

Innovation Capital renewal and development value

Process Capital

Intellectual Property Intangible Assets Developed by Leif Edvinsson


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Adam and Oleksak Concept of Intellectual Capital

Market Value

Intellectual Capital Financial Capital

Human

Capital

Structural

Capital

Relationship

Capital Business Model

Management

Employees Processes

Intellectual Pro

perty

Customers

Brand

Network


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Current Concept of Intellectual Capital

Market Value

Intellectual Capital Financial Capital

Human

Capital

Structural

Capital

Relationship

Capital

Spiritual

Capital

Management

Employees Processes

Intellectual

Property

Customers

Brand

Network

Business

Model


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Human Capital

This indicates tacit knowledge, skills, abilities and experience embedded in

individuals within an organization. It stands out as collection of competencies based

on skills, knowledge, abilities including leadership qualities of management and

general attitudes characterized by motivation in the firm as well as intellectual agility

for adaptation, innovation and cross-fertilization.

Structural Capital

It represents knowledge and rules embedded within organizational routines,

including mechanisms and structures of the organization, assets linked to

methodologies, technologies and processes, licenses, patents, trademarks, research

and development strength, in addition to architectural competencies which enable

a firm to integrate component competencies in new and flexible ways and build new

competencies in accordance with recommendation or requirements.


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Relational Capital

This involves every existing business network linking an organization to partners

(distributors, suppliers and alliance associates) at higher and lower regions of its

value stream; the scope of organizational and product brand, corporate image and

perceptible reputation; in addition to building blocks of customer base, customer

loyalty, customer-centricity quotient and market connectivity.

Business Model

This is a scheme showing how a firm intends to provide offerings and obtain

revenue in return. It’s characterized by competitive ability, market control and

business development strength.


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Spiritual Capital

This stands for virtues, divine principles, extraterrestrial guidance and faith which

operate within an organization.

“There is no other kind of capital that really works without an underlying base of

spiritual capital.”

- Zohar D. and Marshall I.


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Intellectual Capital Management Evaluation Guide

Intellectual

Property

Management

Intellectual Assets/

Knowledge

Management

Managing IC

Creation

IC Value

Creation

IC Value

Management

IC Value

Extraction

Strategic IC

Management

Source: Canadian Institute of Chartered Accountants


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Why should a firm establish Intellectual Asset Strategy?

“Approximately 70% of the asset value of firms on the NYSE is derived from their

intellectual capital. In this information age, as business value continues to accrue

to “soft” assets such as business processes, trade secrets, and know-how and away

from physical forms such as property and equipment, companies are increasingly

aware of the need for intellectual asset protection.”

- Ian Reid


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What Organizational IQ is about.

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Building a competitive company in today’s world demands much more than hiring

top talent. Management choices of systems, structure, and culture make or break a

form’s success. Decisions about these management levers determine organizations’

muscle in gathering and processing information and making and executing

decisions.

This lecture material describes the implications of research by Stanford Business

School into the fundamental drivers of success in high-quality firms.

Understanding of Organizational IQ provides a mental map of good management

practices for knowledge-age companies. In addition, adherence to the concepts is

measurable, simplifying the diagnosis of the areas that most need change and

allowing the companies to monitor the impact of their change initiatives.

The Organizational IQ extends the philosophy of the Six Sigma movement to more

management roles. The term Organizational IQ has close associations to the concept

of human IQ, but it has one noteworthy difference: Organizational IQ has proved to

be malleable with focused effort. Improvement can be even quick if companies

properly diagnose the key change levers.


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Principles and Levers of Organizational IQ


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Companies with high Organizational IQ excel by effectively using the three lever

levers of culture, process, and structure and information-technology (IT) systems to

support five main principles:

External Information Awareness. Top business track competitors and technologies,

and they maintain customer contact at many levels of the organization. Less

successful firms rely on intermediaries such as brokers to track changing customer

needs, or, worse, they rely mostly on internally generated perspectives.

Internal Knowledge Dissemination. Relevant information needs to flow quickly to

decision makers at all levels and in all functions for an organization to respond well

to market development. Successful companies make good use of horizontal and

vertical information channels and are able to tap into these channel quickly.

Effective Decision Architecture. People making decisions must be those with the

best information and perspectives. Traditional organizations often assign decision

making too high in the organization – far from customer interactions or other areas

that could provide detailed insights on technology, product, or service components.


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Organizational Focus. Both the organization as a whole and every business unit

must concentrate on a few high-priority goals and activities and align incentives to

these goals.

Continuous Innovation. The best performing organizations corner sources of

improvement ideas, evaluate them quickly, and then act decisively. Poorly scoring

organizations rarely collaborate with customers or partners to develop better

solutions, often instill in their employees a fear of making suggestions, and tend to

let improvement ideas ripen with age.


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The figure shown afore illustrates the close link between high Organizational IQ and

business success, represented here by growth. The data show a large and growing gap

between the top and bottom third of firms, ranked by their Organizational IQs,

throughout the 12-year period.

A regression analysis of the data shows a positive relationship between Organizational

IQ and business success that is statistically significant at the 1% level and displays an

R2 of 0.67, which is usually strong correlation for such business and economic

research.

The impact of Organizational IQ on business success is particularly strong in

industries with rapid change. Considering that recent years, however, have seen

accelerating change in most industries, Organizational IQ concepts and findings have

relevance for growing number of firms in many sectors.


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The figure shown afore illustrates the declining product lifecycles in the personal-

computer industry. Lifecycles for this market decline almost 70% between 1989 and

1997. Though this rapid decline is unusually dramatic, most industries have seen their

planning horizons shrink significantly. Health insurers, for example, now need to

launch major new product lines every two to three years, and bankers must frequently

revise both their operating approaches and their means of interacting with their

customers.


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S


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One reason that Organizational IQ concepts are useful for guiding management

decisions in that they readily link metrics that correlate with business success. In turn

this capability allows benchmarking of one organization against another.

Many executives react intuitively to comparisons of their firms’ standing with others

in different sectors. Organizational IQ , however, deals with issues that are generic

enough to be comparable. The concept of Organizational IQ circumvents many of the

difficulties of benchmarking specific strategies or operational policies across firms.

Such comparisons are often difficult even within the same industry let alone across

sectors. Though financial results are also comparable across industries, Organizational

IQ has the additional benefit of providing a leading indicator of success.


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Examples of Leveraging Organizational IQ


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External Information Awareness.


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External Information Awareness.

Ninety percent of high IQ companies knew the sales growth rate for their top

competitor, compared to only 37 percent of low IQ companies. High IQ

companies are also much more likely than low IQ companies to know their top

competitor's market share gain, productivity improvements, and unit cost.

Eric von Hippel at MIT found that of 224 inventions, only one-third originated

within the company that produce the product. More than half of the innovations

came from end-users. 71 percent of high IQ companies rated direct discussion

of product development engineers with end-users as extremely important sources

of new ideas. Only 24 percent of low IQ companies thought that direct

discussion of with end-users was helpful.


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Internal Knowledge Dissemination.


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Internal Knowledge Dissemination.

High IQ companies recognize that good decisions rely on good information.

Whereas low IQ companies use information as a symbol of power, even as a weapon.

74 percent of high IQ companies tie incentives to team performance not individual

performance. They also keep the team contact through all phases of product

development.

Another way to straighten teams and disseminate knowledge is to rotate people

through different job functions. This is common in Japanese companies. Even top

management must rotate to make the most of this system.

In high IQ companies, managers practice "managing by wandering around" to

promote information transfer up and down hierarchies.

Ninety-three percent of high IQ companies use email and in most cases this is

supported and supplemented by cellphones, pagers, groupware and

videoconferencing. Low IQ firms are less likely to deploy these technologies.


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Effective Decision Architecture.


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Effective Decision Architecture.

High IQ companies give decision authority to people who are in the right place to

have the relevant information to make decisions. Locating decision-making power

has appointed information speeds up decision-making, improves the quality of those

decisions, and creates a sense of ownership among front-line employees.

In their survey, the authors and asked business unit managers: "who has the power to

reallocate 10 percent of the business units R&D budget, and how long does it take to

finalize the decision?"

1.When the decision was made one level below the business unit manager, it took

only 1.9 weeks.

2.When the business manager may the decision, it took 3.1 weeks.

3.When the decision was made one level above the possession manager, it took

5.7 weeks.

In an industry in which the largest share of profits is typically made within the first

few months after a new product hits the market, the gap of four weeks between the

first and last group of companies is critical. High IQ companies give greater spending

authority than low IQ companies to each level below the business unit had.


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Organizational Focus.


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Organizational Focus.

High IQ companies take advantage of organizational focus. Nokia provides an

example. Nokia began diversifying in the mid-1960s can continue this practice until

1991. However in 1992 the company decided to focus on digital mobile phones and it

sold off its other interests such as chemical and television businesses. By 1998 the

stock had risen one hundredfold from its low in 1991.

High IQ companies have an average of 2.1 product lines per $100 million in sales

volume compared to 8.5 for low IQ companies. In high IQ companies like Hewlett-

Packard, divisions are set up with a single focus. If a division grows beyond its focus,

they split it into two divisions so each new division can have a tighter focus.

Other examples of the benefits of focus include UNIX which was developed by two

people, Java which was developed by fewer than 5 and the Macintosh system which

was developed by less than a dozen people, and finally DOS which was written by

two people.


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Continuous Innovation.


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Continuous Innovation.

No matter how high tech communication gets, it always begins with people talking to

each other. And as always, focus is paramount. Focus means limiting the number of

suppliers. High IQ companies had one-fourth as many suppliers as low IQ companies.

High IQ companies seize opportunities for partnering because it allows them to focus

on their core competencies rather than running a variety of activities. The authors

asked the question "we interact with our external partners almost as closely as with

our colleagues in-store." Companies that scored low on the question suffered from

missed deadliness. High IQ companies will come suppliers as full-time participants

of product development teams and followed up with regular communication on

performance levels.

In the 1980s, Chrysler treated suppliers poorly and lost money. Then it adopted closer

working relationships with its suppliers. Chrysler classifies their primary suppliers as

Tier 1, empowering them to handle an entire module of an automobile, such as seats,

and then in turn to handle their own subcontractors for various parts. Today Chrysler

makes $1500 per car, more than any other American or Japanese automaker has

compared with $250 per car in the 1980s.


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Our discussion will go on to ‘Theme13. Appraisal of KM Performance - BSC’ which is regarded as a means of evaluating knowledge-based management performance.

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