Supplemental Slides to Chapter 3 Knowledge Strategies Knowledge Markets January 21, 2004

Review from Last Week Types of IS What is KM? Drivers of KM What is Knowledge? Data Information Knowledge “The medium is not the message” “The thing delivered is more important than the delivery vehicle.”

Strategy for Managing Knowledge HBR, 1999 Hansen, Nohria, Tierney

Codification Strategy Extracted from a person, made independent of person, reused. Create “knowledge objects” from interview guides, work schedules, benchmark data, market segmentation analysis, presentations, estimates, programming documents, technical specs, training material, change management documentation Achieve scale in reuse Ernst and Young, Accenture

Personalization Strategy Focus on dialogue between individuals not knowledge objects Knowledge that hasn’t been codified and probably couldn't; brainstorming, one-on-one Bain, BCG McKinsey: fosters networks of people between offices, consultants are expected to return calls from colleagues quickly, directories of experts.

How Consulting Firms Manage Knowledge Codification: codify and store knowledge so it can be accessed and used by anyone in the firm Competitive Strategy Personalization: provide creative, analytically rigorous advice on high-level strategic problems Reuse Economics: invest once in a knowledge asset and reuse it many times; similar problems; saves work, reduces communication costs Economic Model Expert Economics: charge high fees for customized solutions to unique problems; rich in tacit knowledge People-to-Documents KM Strategy Person-to-Person Invest heavily in IT; goal is to connect people with reusable codified knowledge Information Technology Invest moderately in IT; the goal is to facilitate conversations and the exchange of tacit knowledge Hire new college grads, train people in groups, scenarios, reward people for using and contributing to document database. Human Resources Hire MBAs who like problem solving and can tolerate ambiguity; train people through mentoring, reward for sharing with each other

Choice? Most firms use both but to be successful, firms focus on one and use the other supportively KM strategy should support competitive strategy - how the firm creates value for customers.

Dell vs. HP Dell: assemble inexpensive PCs made(build) to order. strategy is to assemble inexpensive PCs made(build) to order. Sophisticated KM system; 40,000 possible configurations (100 for competitors) each configuration is used 275 times. Reuse allows lower costs. HP: develop innovative products. Strategy is to develop innovative products. Technical knowledge must get transferred to development teams. Company uses person-to-person exchanges; don’t limit travel budgets for engineers.

Which Strategy is Right for You? Do you have a standardized or customized product? Do you have a mature or innovative product? Do your people rely on explicit or tacit knowledge to solve problems?

Knowledge Markets

Knowledge is exchanged, bought, bartered and moved by market forces Knowledge is the most sought after remedy for uncertainty Knowledge market transactions occur because they provide utility

Knowledge Markets Buyers Buyers want insights, judgments, understanding What is this client like? How did we win that sale? 15-20% of manager’s time is spent in knowledge search and request Sellers Sellers have an internal market reputation for knowing about a process or subject Some aren’t skilled at articulating knowledge, some have specialized knowledge, some like to hoard Brokers Brokers are the gatekeepers, boundary spanners. Understand the big picture Managers, librarians

The Pricing System How are value exchanges efficiently rendered We can purchase knowledge externally (consultants, lawyers). Internally, money doesn’t work as well.

Internal Pricing System Reciprocity: “the favor bank” Repute: Reputation seems intangible but it can produce tangible results: bonus, promotion, reward of guru, security Altruism: “nice guy” Passionate about my knowledge, mentor

Knowledge Market Inefficiencies Incompleteness of information Where do we find knowledge Lack of explicit information for pricing Asymmetry of knowledge Knowledge “feasts and famines” Knowledge at the top may not be available to middle managers Localness of Knowledge Knowledge markets depend on trust and we trust the people we know Satisfice: we’ll take the knowledge of the person next door rather than incur cost of finding better knowledge

Developing Effective Knowledge Markets Use Information Technology Wisely Build Marketplaces Physical and virtual spaces dedicated to knowledge exchange; talk rooms; knowledge fairs. Texas Instrument's Share Fair. Creating and Defining Knowledge Market Value Provide evidence of recognition, reward, promotion

Higher workforce morale My expertise is valuable, less wasted effort, better communication, less uninformed decision making, less employee cynicism Greater corporate coherence Shared awareness of corporate goals Richer Knowledge Stock Ever sell increases total stock of knowledge Newly acquired knowledge interacts with existing knowledge to create new ideas Stronger Meritocracy of ideas Test official beliefs and expose the flaws of the faulty ones. Ken Olsen at DEC The Peripheral Benefits of Knowledge Markets