Paper 3: Strategic Management

Module: 31, Knowledge Management and Strategy

Principal Investigator Prof. S P Bansal

Vice Chancellor
Maharaja Agrasen University, Baddi

Prof YoginderVerma
Co-Principal Investigator Pro–Vice Chancellor
Central University of Himachal Pradesh. Kangra. H.P.

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Paper Coordinator xxxxxxxxxxxxxxxxxxxx,
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Shashi Kapoor
Content Writer University Business School
Panjab University Regional Centre, Ludhiana, Punjab
 Items Description of Module
Subject Name Management
Paper Name Strategic Management
Module Title Knowledge Management and Strategy
Module Id Module No. - 31
Pre- Basic understanding of strategic management
Requisites
Objectives To understand the concept of knowledge, knowledge management, linkage between
knowledge management and business strategy
Keywords Knowledge, Knowledge management, Core Competency, Business Strategy

QUADRANT-I

Module – 31 – Knowledge Management and Strategy

1. Learning Outcome
2. Introduction
3. Concept of Knowledge
4. Types of Knowledge
5. Knowledge management
6. Knowledge management and Strategy
7. Aligning the Knowledge Drivers and Business Strategy
8. Summary

1. Learning Outcome:
After completing this module the students will be able to understand:
 Changes in the environment leading to the concept of Knowledge economy
 Concept and relevance of knowledge
 Types of Knowledge
 Concept and process of knowledge management
 Interdependency of knowledge and business strategy
 Aligning the knowledge driver with business strategy

2. Introduction:
Radical technological advancements, continuous changes in the customers’ preferences &
tastes, demand, and global competition have made the modern business environment very complex
and dynamic. The nature of business has changed. There is a shift from industrial economy, where
main focus was on commercial products, to knowledge economy, where service and expertise are
the main measures for performance of a business (Figure-1).

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Knowledge economy has changed the
overall business experience. As
organizations develop quickly, information
technology and information capital are
playing key role in the success of any
organization. Knowledge management has
become an important aspect of performance
as knowledge is one of the strategic issues
for strengthening the competitive position of
a company. Since it is important for
individuals, organizations and economy as a
whole, therefore understanding and
Figure-1
managing the concerns related to effective (Source -
management of knowledge and its impact on http://www.sociologydiscussion.com/economics/distinctive-
features-of-knowledge-economy-explained/899)
business strategy, has become crucial.

3. Knowledge:
Knowledge is very important aspect of performance of an organization today. It is
important to note that many experts underline the need to focus on knowledge as a basic resource.
Increasing number of companies has started realizing that knowledge is the key asset and have
started managing this asset to achieve optimum business results.

The term knowledge is used by all of us in our day to

day life. Sometimes we use this term for know-how or
wisdom also. For a layman there may not be any
difference in the terms data, information and
knowledge, but actually these are different.
Knowledge is a refined form of data and information
(Figure-2). Data is the rawest stage, an unstructured
collection of facts and figures, whereas information is
the next level, and is regarded as structured data. The
Figure-2 Longman online dictionary defines the knowledge as
(Source -
http://learningforsustainability.net/knowledge- the information, skills, and understanding that
management/)
someone has gained through learning or experience

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Data: Facts and figures which relay something specific, but which are not organized in any way
and provide no further information regarding patterns, context, etc. These are unstructured facts and
figures that have the least impact on the decision making.

Information: For data to become information, it must be contextualized, categorized, calculated

and condensed. It is a processed form of data and is clear, crisp and simple. It presents a bigger &
clear picture and has some relevance and purpose. It may convey a trend in the environment, or
indicate a pattern of sales for a given period of time. Information technology is usually invaluable
in the capacity of turning data into information, particularly in larger firms that generate large
amounts of data across multiple departments and functions. The human brain is mainly needed to
assist in contextualization.

Knowledge: Knowledge is actionable information and is closely linked to doing. It helps in making
predictions, determining associations and making decisions. The knowledge possessed by any
individual is a product of his experience, and encompasses the norms by which he evaluates new
inputs from his surroundings. It is hard to communicate and difficult to express in words. It often
emerges in the minds of people through experience.

Davenport defines the knowledge as a fluid mix of framed experience, values, contextual
information, insight, and intuition that provides an environment and framework for evaluating and
incorporating new experiences and information. It originates and is applied in the mind of the
knowers. In organizations it often becomes embedded not only in documents or repositories, but
also in organizational routines, practices and norms. Knowledge is represented by all the attributes
of human capital of a company like competences, expertise, market experience, know-how etc.
Knowledge management’s role is to help companies to turn this human capital into intellectual
capital by creating value.

4. Types of Knowledge:
From the business point of view, knowledge can be broadly classified on the basis of (a)
Type (b) Focus (c) Complexity, and (d) Perishability (Figure-3).

Basis of Classification Types of Knowledge

Type of Knowledge
Focus of Knowledge
Complexity of Knowledge
Perishability of Knowledge
Technological Knowledge, Market Knowledge,
Environmental Knowledge
Operational Knowledge, Strategic Knowledge
Explicit Knowledge and Tacit knowledge
Low Perishability, High Perishability
(Figure-3)

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In reference to knowledge management usually two types of knowledge are defined, namely
explicit knowledge and tacit knowledge. In practice, knowledge resources of an organization are
blend of explicit and tacit knowledge rather being one or the other. Both these types of knowledge
are theoretically opposite of each other (Figure-4).

Explicit •Documents
•Manuals

Knowledge •Databases
•Patents

Tacit •Difficult to express, record and transfer

•Includes experiences, skills, intutions, abilites, values and vision of
Knowledge employees

Figure-4

Explicit Knowledge: It is that component of knowledge resources of an organization which can be

converted into tangible form. It can be converted into systematic & formal language and can easily
be translated and shared with anyone in the organization. It is found in form of documents, plans,
projects, manuals, specifications, memos, notes, databases, and patents etc. This type of knowledge
is easy to collect, store and share through information technology. An organization, which can
quickly transfer the knowledge throughout organization, creates competitive advantage over its
rivalry.

Tacit Knowledge: It is intangible kind of

knowledge which is personal in nature, context
specific and difficult to translate or record. It is
in the minds of the employees and includes
their experiences, skills, intuitions, learnings
from mistakes, abilities, ideas, values, visions,
and beliefs etc. Therefore it is difficult to
express, record and transfer such type of
knowledge in the organization (Figure-5). It is
hard to manage, store or share even with the
help of information technology.
Figure-5
(Source - https://www.link2learn.nl/)

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5. Knowledge Management:
The knowledge management has emerged as important field of management. It
encompasses identifying and mapping intellectual assets within the organization, generating new
knowledge for competitive advantage, making vast amount of information accessible in the
organization, and sharing best practices.

Knowledge management is the process of capturing, distributing, and effectively using

knowledge. It is a discipline that promotes an
integrated approach to identifying, capturing,
evaluating, retrieving, and sharing all of an
enterprise's knowledge resources (Figure-6).
These resources may be in form of databases,
documents, policies, procedures, and
previously un-captured expertise and
experience in individual workers. Perhaps the
most central thrust in knowledge management
is to capture the knowledge and make it
available throughout the organization so that it
can be used by other also. Knowledge Figure-6
(Source -
management practices have been implemented https://www.pinterest.com/pin/77687162296128024/)
at many organizations with data warehousing,
groupware information systems, systematic document management, imaging systems, and data
mining techniques to understand and leverage the knowledge life cycle to help produce sustainable
innovation to enhance knowledge production but not only knowledge integration.

It is all about getting the right knowledge to the right person at the right time. This in itself may not
Figure-7
(Source -
https://www.amctechnology.com/lets-
talk-about-knowledge-workers/
seem so complex, but it implies a strong tie to corporate strategy,
understanding of where and in what forms knowledge exists,
creating processes that span organizational functions, and ensuring
that initiatives are accepted and supported by organizational
members. Peter Drucker states that knowledge management is the
co-ordination and exploitation of knowledge resources of a
particular organization in order to create benefit and competitive
advantage. It may also include new knowledge creation, or it may
solely focus on knowledge sharing, storage and refinement. The
overall objective is to create value and to leverage, improve, and
refine the firm's competences and knowledge resources to meet
organizational goals and targets. Employees of the organization,
who spend most of their time for creating, using and sharing the
knowledge, are called knowledge workers (Figure-7).

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Knowledge management is the systematic management of an organization's knowledge resources
for the purpose of creating value and meeting tactical & strategic requirements. It consists of the
initiatives, processes, strategies, and systems that sustain and enhance the creation, refinement,
storage, assessment, sharing, and application of knowledge (Figure-8).

Knowledge Knowledge Knowledge Knowledge

Creation Storage Sharing Utilization

Figure-8

Knowledge management has several dimensions including (Figure-9):

Knowledge Strategy: Knowledge strategy must be dependent on corporate strategy. The objective
is to manage, share, and create relevant knowledge assets that will help meet tactical and strategic
requirements.

Organizational Culture: The organizational culture influences the way people interact, the context
within which knowledge is created, the resistance they will have towards certain changes, and
ultimately the way they share (or the way they do not share) knowledge.

Organizational Processes: The right processes, environments, and systems that enable knowledge
management to be implemented in the organization.

Leadership: Knowledge management requires competent and experienced leadership at all levels.
There are a wide variety of related roles that an organization may or may not need to implement,
including a chief knowledge officer, knowledge managers, knowledge directors etc.

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 Knowledge
Strategy

Organizational Organizational
Culture processes

Knowledge
Management
Dimensions

Leadership
Technological
Plateform

Figure-9

Technological Platform: The systems, tools, and technologies to be used for storing and sharing
the knowledge, which are fit to the organization's requirements, are properly designed and
implemented.

Knowledge management must provide the

right tools, people, structures, teams, and
culture, so as to enhance the overall learning
in the organization (Figure-10). It must
reflect the value and applications of the
knowledge created and must provide the
solutions to store the knowledge and make it
available for the right people at the right
time. It must provide a system to
continuously assess, apply, refine, and
remove organizational knowledge in
conjunction with concrete long and short Figure-10
Source - https://www.pinterest.com/pin/381257924683837574/
term factors.

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6. Knowledge Management and Strategy:
Organizations are redesigning their business models to link the knowledge and business
strategy (Figure-11). Knowledge
acquisition, sharing and application
have taken the role of key sources for
competitive advantage. Generally, every
organization has knowledge resources
and business strategy but they often find
difficult to link both of them for
competitive advantages. Managers are
busy deciding that how to utilize the
knowledge resources of their
organization to strengthen the strategic
performance. They are seeking to
understand the present status of their
organization, to decide the Figure-11
Source - https://www.pinterest.com/pin/397653842068407992/
future
direction and to plan that how to steer
the knowledge assets of organization for competitive advantage. A recent benchmarking study by
the American Productivity and Quality Centre suggests that more than fifty percent of best practice
companies in Europe report that knowledge management is clearly a part of their strategic goals.

Even companies today have employee positions and designations that see the strategic
view on the connection between knowledge and strategic management. The positions generally
include chief knowledge officer, director of knowledge management, knowledge management
specialist, knowledge management administrator, knowledge management manager etc. The
positions and funding invested by organizations simply reveal their concern for effective knowledge
management and its compatibility for business strategy.

The power of knowledge lies in its ability to influence, and enable, the business strategy.
Once the role of knowledge is defined, then other aspects of strategic management like
organizational design, market
segmentation, resource
allocation, product development
etc. can be configured to
strengthen the strategy.
Identifying the right knowledge
strategy for a company can be Figure-12
(Source -
misleading unless the company https://www.researchgate.net/publication/242349298_Spooner_K_Strategies_for_implement
starts the selection process at ing_Knowledge_Management_Role_of_Human_Resources_Management_Journal_of_Know
ledge_Management_4_337-345)
strategic business level. Strategy

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formulation and knowledge, both are multifaceted and complex. Strategy reflects the current
strategic position and future intent of a company. On the other side, organization’s knowledge
strategy includes the different perspective like technology, supplier, competition, and customers etc.
Company need to formulate its business strategy in a way that knowledge could make it flourish. In
order to reap the benefits from linkage of knowledge and strategy, a company must formulate its
strategic plan, identify the knowledge gap and then should try to fill the gap through knowledge
strategy (Figure-12).

7. Aligning the Knowledge drivers and Business Strategy:

Knowledge has an enabling role in the success of business strategy. Knowledge
management plays critical role, not only in operational planning but strategic planning also.
Knowledge is a driver of business strategy and business strategy is a driver of knowledge
management (Figure-13). Following insights will help further in understanding the linkage between
knowledge and strategy.

 Knowledge as a source of capacity building: Each and every employee joins the
organization with different set of skill, knowledge, and attributes which are developed
though experience and education over a period of time. These skills are further developed in
the new work settings where peer group, organizational culture and experience contributes
in further learning process. Knowledge management helps in ensuring that workers develop
suitable competencies and capabilities to meet the future needs and challenges in the
organization. It encourages the knowledge workers to anticipate and prepare for the long run
strategic needs of the organization. Thus it helps the capacity to identify, reflect, influence,
implement and continuously adapt in the light of new knowledge.

Knowledge
as a source
of capacity
building

Developing Knowledge
knowledge sharing as a
community core
competency

Knowledge
drivers and
Business
Strategy
Knowledge
Adding value as a source
of Innovation

Knowledge
transfer vs.
knowledge
creation

Figure-13

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 Knowledge sharing as a core competency: Core competency has got a important role to
play in having winning strategies. While discussing about knowledge management, may
authors list a range of core competencies that needs to be developed in knowledge workers
for successful strategies. One of those core
competencies is the knowledge sharing
(Figure-14). Many employees will have
experienced contradictory messages about
the need to share, particularly when rewards
are to the individuals rather than team or
group. But the knowledge intensive
communities should must encourage the
sharing and collaboration. Sharing of
knowledge among individuals and among
different departments or units is the most
challenging aspect of knowledge
management. Knowledge sharing can be Figure-14
(Source - http://www.vaibmu.com/2014/09/10/is-
improved by adopting knowledge-a-strategic-resource-2/)
information
technology solutions. Modern
communication technologies may be used to create knowledge networks to share knowledge
among employees, teems, groups and departments, where intensive communication not only
expands present knowledge, but also helps in creating new ideas leading to winning
strategies.

 Knowledge as a source of innovation: In the present era of competition and technology

proliferation, innovation is the only key for survival, growth and profitability of any
organization. Innovation builds on the activities of knowledge sharing whether explicit or
tacit (Figure-15). Dialogues and frequent interactions between knowledge workers lead to
knowledge synergy and is creation of innovation. Even the interaction of the knowledge
workers with customers,
suppliers and other
parties outside
the organization, also
lead to
innovation programme.
Knowledge
management helps in
improving the
Figure-15
innovation capabilities (Source - http://www2.technologyforum.eu/en/articolo/a-new-paradigm-for-the-economy-of-
of an organization knowledge--the-educational-innovation.htm)

through continuous
collection, storage and sharing of knowledge.

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 Knowledge Transfer vs. Knowledge Integration: Organizations have to choose a strategy
among knowledge transfer and knowledge integration. In brief, knowledge transfer refers to
general strategy of facilitating learning and exchange, whereas knowledge integration refers
to rapid application of existing but disconnected knowledge throughout the organization. In
case of knowledge transfer, knowledge is shared by one employee to some others through
interaction. But in case of knowledge integration, knowledge is shared throughout the
organization at a same time with the help of some common integrated data base system. The
level of perishability of knowledge, uncertainty, and speed of response in the business
context can help in determining which of these two knowledge strategies best suit the
business strategy of an organization. A strategy that emphasizes knowledge integration
promotes synthesis of individually held knowledge at the project or task level while keeping
cross member learning down to a bare minimum level. Knowledge resources are of little
value if they cannot be mobilized rapidly. A common trap that knowledge management
initiative fall into is that of adopting a knowledge transfer strategy when knowledge
integration strategy is required.

 Adding Value: Knowledge management has the potential to be significant organizational

influence which leads to value addition in long run. However, it also requires major shifts in
the way the organization views its people, systems and the way they interact amongst
themselves. Any activity associated with knowledge management must be carefully
scrutinized to ensure that it does add value to the organization. The only imitation of
practices of other organization without considering the existing culture may prevent the
effective knowledge management. The development of knowledge management therefore
needs to be carefully considered and constantly reviewed to ensure that each element
positively contributes to the consistent implementation of an effective knowledge culture
and related practices relevant to that organization.

 Developing a strategic knowledge community: Knowledge management focuses on

developing on a strategic knowledge community by emphasizing the communal sharing of
knowledge and building of better practice through community interaction. While
constructing knowledge management frameworks, it is important to include the whole
organizational community. It affects the manner in which leadership is reflected across the
organization. Many managers are territorial and try to exercise control over knowledge
resources, its access and sharing. The knowledge environment needs to be user focused so
that any stakeholder can identify and have access to knowledge resources with the minimum
efforts. This changes the nature of power and control in the knowledge environment. It may
also require a strong leadership, as the focus moves from unit based protectionism to the
collective good.

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8. Summary:
Knowledge is a key element that determines the functionality and performance of an
organization. It is multivariate, multidimensional and of strategic importance for any business
entity. Organizations grow when employees, continuously create, organize, stock, analyse,
interpret and use the knowledge. Knowledge management requires specialized managers and
effective management solutions in the form of information and communication technologies.
Knowledge management cannot survive by itself. It involves people, communication, favorable
policies, updated technologies and above all, a change in the culture of an organization.

The manners, in which a business strategy was used to be formulated few decades ago,
are no longer applicable in the present era of knowledge economy. This phenomenon can be
attributed to shift in the strategic importance of knowledge resource in the organization. An
appropriate fit between knowledge management and objectives and business strategy is must for an
organization. Objective and knowledge management strategy must be reflective of those of an
organization. Without having a clear link between knowledge management and business strategy,
even the world’s best strategy or knowledge management practices, will not be able to deliver.
Organizations need to ensure that their knowledge practices and business strategy are consistent
with corporate objectives. The techniques, technologies, resources, skills, culture etc. are aligned
with and support the business objectives of the organization. When such alignment is clearly
established, the knowledge management system will be moving in a direction that holds promise
for long lasting competitive advantage.

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