Knowledge Management This page intentionally left blank Knowledge Management Classic and Contemporary Works Edited by Daryl Morey Mark Maybury Bhavani Thuraisingham The MIT Press Cambridge, Massachusetts London, England © 2000 Massachusetts Institute of Technology All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or informa- tion storage and retrieval) without permission in writing from the publisher. This book was set in Sabon by Mary Reilly Graphics. Printed and bound in the United States of America. Library of Congress Cataloging-in-Publication Data Knowledge management : classic and contemporary works / edited by Daryl Morey, Mark Maybury, Bhavani Thuraisingham. p. cm. Includes bibliographical references and index. ISBN 0-262-133384-9 (hc.) 1. Knowledge management. I. Morey, Daryl. II. Maybury, Mark T. III. Thuraisingham, Bhavani M. HD30.2 .K63686 2001 658.4'038—dc21 00-046042 For their generous support, this collection is dedicated to our spouses Ellen, Michelle, and Thevendra This page intentionally left blank Contents Preface xi Acknowledgments xv Introduction: Can Knowledge Management Succeed Where Other Efforts Have Failed? 1 Margaret Wheatley I Strategy Introduction: Strategy: Compelling Word, Complex Concept 11 Gordon Petrash 1 Classic Work: The Leader’s New Work: Building Learning Organizations 19 Peter Senge 2 Reflection on “A Leader’s New Work: Building Learning Organizations” 53 Peter Senge 3 Developing a Knowledge Strategy: From Management to Leadership 61 David J. Skyrme 4 Building Intangible Assets: A Strategic Framework for Investing in Intellectual Capital 85 Patricia Seemann, David De Long, Susan Stucky, and Edward Guthrie 5 Knowledge Sharing Is a Human Behavior 99 William Ives, Ben Torrey, and Cindy Gordon viii Contents II Process Introduction: Sharing and Building Context 133 Bipin Junnarkar 6 Classic Work: Theory of Organizational Knowledge Creation 139 Hirotaka Takeuchi and Ikujiro Nonaka 7 Reflection on Knowledge Management from Japan 183 Hirotaka Takeuchi and Ikujiro Nonaka 8 Knowledge Management: Linking Theory with Practice 187 Rüdiger Reinhardt 9 Tacit Knowledge, Unarticulated Needs, and Empathic Design in New Product Development 223 Dorothy Leonard 10 Enabling Complex Adaptive Processes through Knowledge Management 239 Rudy Ruggles and Ross Little 11 Knowledge Sharing Shifts the Power Paradigm 249 Carol Willett 12 From Capitalizing on Company Knowledge to Knowledge Management 261 Michel Grundstein 13 Evolution through Knowledge Management: A Case Study 289 Barbara Lawton III Metrics Introduction: Metrics: Separating KM Fact from Fiction 311 Edward Swanstrom 14 Classic Work: The Balanced Scorecard: Learning and Growth Perspective 317 Robert S. Kaplan and David P. Norton 15 Measuring Intangibles and Intellectual Capital 337 Karl-Erik Sveiby 16 New Measures for a New Era 355 Laurie J. Bassi and Mark E. Van Buren Contents ix 17 Managing Organizational Knowledge by Diagnosing Intellectual Capital 375 Nick Bontis 18 Knowledge Sharing Metrics for Large Organizations 403 Laurence Lock Lee Appendix 421 Contact the Authors 423 Index 427 This page intentionally left blank Preface This collection is a valuable resource for leaders in government, industry, or academia who are interested in starting or evaluating a knowledge management program, are currently implementing a knowledge manage- ment program, or are simply interested in expanding their knowledge. The discipline of knowledge management has become a hot topic in business because of its prospects for dramatic improvement in organiza- tional effectiveness. This book is intended to serve as a logical entry point for leaders who are interested in knowledge management and want to become grounded in the seminal concepts and contemporary thinking from multiple perspectives. Readers in government, industry, or acade- mia who are interested in starting a knowledge management program, are currently implementing a knowledge management program, or are simply interested in expanding their knowledge, will find this book use- ful. The chapters can be read sequentially, or they can be read individu- ally when the reader is faced with an issue that a chapter addresses. The book is organized by three topics critical to the success and understanding of knowledge management: strategy, process, and metrics. Each section begins with a seminal work from a leader in the field. The Strategy section is concerned with the motivation and vision for knowl- edge management, along with how to structure a knowledge manage- ment program to achieve desired outcomes. Peter Senge’s “A Leader’s New Work: Building Learning Organizations” underlines the importance of increasing growing the knowledge in your organization through orga- nizational learning. The Process section is concerned using knowledge management to make existing practices more effective, speeding up orga- nizational learning, and implementing knowledge management. The excerpt from Hirotaka Takeuchi and Ikujiro Nonaka’s The Knowledge xii Preface Creating Company, provides a foundational theory on how the knowl- edge creating process works. Finally, the Metrics section focuses on meas- urements for improving the understanding of what impact knowledge management is having on an organization and how to measure the effec- tiveness of a knowledge management program. The excerpt from Robert Kaplan and David Norton’s The Balanced Scorecard provides an outline and example metrics on how to measure the growth of knowledge through learning in an organization. Within each section, previously unpublished chapters of contempo- rary efforts elucidate and further develop some of the foundational con- cepts and ideas on strategy, process, and metrics. Each chapter has gone through a peer review and selection process focusing on originality, sig- nificance, and correctness. The seminal works were chosen from a list of highly referenced pieces by an editorial review board of experts. These classic works are followed by a reflection by the original authors, pro- viding their contemporary perspective on their landmark contribution. All books, even collected works, are influenced by the bias of the edi- tors. In particular, there is a strong bias toward a learning centric view of knowledge management in this collection as opposed to an informa- tion centric view. The learning centric view emphasizes that knowledge is the “capability to act effectively” and is derived from learning. Knowledge management in this view is a management function that accelerates learning. The information centric approach is best under- stood by looking at the definition of knowledge management from the Gartner Group: Knowledge Management is a discipline that promotes an integrated approach to identifying, managing and sharing all of an enterprise’s information assets, includ- ing database, documents, policies and procedures as well as unarticulated expert- ise and experience resident in individual workers. The editors’ bias toward the learning-centric view stems from the observation that it does not matter how well you manage your informa- tion if it cannot be understood and turned into actionable knowledge— the ability to do. In many cases, the differences between the two views are subtle because managing your information flows is often the most effective way to accelerate learning. However, the learning centric view opens up the possibility of exploring different avenues to accelerating learning. Preface xiii The following steps outline how this collection could be used to help start a knowledge management program in your organization. 1. Read Peter Senge’s “A Leader’s New Work” and his reflection on that original work to understand why your organization’s long-term compet- itive advantage depends on your ability to learn faster than your compe- tition. 2. In the strategy section, several frameworks for creating a knowledge management program are proposed by Skyrme; Seemann, De Long, Stucky, and Guthrie; and Ives, Torrey, and Gordon. The editors suggest that you use your understanding of your business and these frameworks to develop a program tailored to your organization and business envi- ronment. A knowledge-management framework is vital for a successful program as it guides decision making throughout the implementation. 3. Read the excerpt from Nonaka and Takeuchi’s The Knowledge Creat- ing Company and their reflection on that original work. This will give you a theoretical underpinning of one view of how knowledge is trans- ferred and what processes will most likely benefit from a formal knowl- edge management program. 4. Reinhardt gives an overview of the organizational learning process. Integrate the processes in your organization with the organizational learning process to get an understanding of the strongest lever points to achieve improvement. 5. If targeting your knowledge management process to specific elements within your organization is crucial, Ruggles and Little provide a differ- ent lens on what processes to select for improvement from the new field of Complex Adaptive Systems. Grundstein provides an approach, called GAMETH, that will help you locate crucial knowledge in your company and the critical process that should be improved to positively affect the bottom line. 6. If your organization has a new product development process that is central to its competitiveness, Dorothy Leonard’s overview shows how knowledge management and an understanding of tacit