Critical Twenty First Century Commodities: Purchasing as a Knowledge Manager
Peter Stannack MSc. LLB.
Peter Stannack MSc. LLB., Director, Sourcing Performance Ltd, Tel 0+1441670 815258, Fax 0+1441670 520952, Email Pete@supplypportal.com
85th Annual International Conference Proceedings - 2000
Knowledge Management - What Are We Trying to Do?
In our eponymous information society, the ability to turn information into usable knowledge is a critical task for the purchasing manager. As organizations move into the network age, understanding how suppliers operate, and being able to co-ordinate activities throughout the trading network is less a task for contracts -which often represent a lack of information - and more a task for knowledge. Initiatives such as supplier assessment, supplier communication and early supplier involvement in design are all indicators of the purchasing managers need for information and knowledge. The objectives of introducing a knowledge management initiative within your network are to:
- Ensure that all the resources within the network are being used to best effect.
- Improve the response times within both the organization and the network because knowledge is accessible by everyone who needs it.
- Avoid re-inventing the wheel as different parts of an organization try the same solutions because no one communicates.
All in all KM is about trying to get an organization to think and act as one person when they are engaged on the same task. Although KM is seen as a large company activity, it can be useful for smaller companies too. Even in companies with thirty or forty employees, knowledge is generated but not shared effectively. It is very common to develop a solution to a problem that is used, and then discarded. The person or group that develops the solution thinks that the problem was unique, and forgets that other people are likely to face the same problem in the future -or elsewhere in the organization.
This is what might be termed a 'pencil and paper' approach to problem solving. The calculator carries out the addition, multiplication or other function and the problem is solved. The paper is thrown away and both the problem and the answer are lost, only to need rediscovering again when the problem comes up. . Knowledge management is more of a 'spreadsheet' approach to problem solving where the formulae and functions are made visible and accessible to all the people that might need them.
Principles: Why are We Trying to Do It?
There are clear benefits in being able to draw on this type of organizational knowledge. Lew Platt, chief executive of Hewlett-Packard: "If HP knew what HP knows we would be three times as profitable."
The benefits of identifying all the different types of information in your organization and making the best possible use of it are potentially considerable. This includes experience, skills, know-how, instinct, data-crunching and even rumor. Most companies do not make the most of their intellectual assets: they don't know what they have, they don't know when they are about to lose it and they aren't able to aggregate different parts to form a competitive weapon.
Swedish financial services company Skandia has pioneered attempts to calculate the material worth of knowledge and its director of intellectual capital puts the ratio to official book value at anything between five-to-one and 16-to-one.
Ideally an employee should be able to draw on the power of what his or her organization knows to improve whatever they are doing. Normally this information is accessed through a computer network. Often the network is enabled using 'Groupware' technology so staff can take from and add to information on the company database. For example, a staff member preparing for a meeting with a supplier can:
- Access that company's public accounts and any credit check that might have been done,
- Get the e-mail address of a colleague a thousand miles away who has dealt with them in a previous job and,
- Perhaps, discover that they aren't a new supplier after all - they are just a new supplier to this department or they had been 'forgotten'.
Origins: Where Did it Come From?
Knowledge management as a concept has its roots in two related concepts that established a high profile in business in the 1980s. First, total quality management changed the ways companies thought about its processes and how they could be linked, streamlined and directed to deliver business benefit. Efficient use of information was crucial. Second, employee empowerment asked the question of how total quality could be realized without freeing staff up from traditional structures and giving them the tools to be innovative. 'People are our greatest asset' became the slogan.
Both of these approaches were imported in various forms from Japanese industrial practice. The flatter structures and 'informality' of leading Japanese companies led western business thinkers to consider the obvious next step - how could an organization's buried knowledge become an asset in itself. In the mid 80s Peter Drucker began talking about how 'knowledge-based people' would be key to business success in the future. From this point large corporations, led by the international management consultancies, began to take action.
Justification: Why Should We Do It?
There are a number of reasons for introducing a KM program within your organization.
Increasing Competition: Companies have to move quicker than ever before, both in introducing new products and shifting their basic market strategies. The time is gone when you could change slowly, waiting for information to percolate though pretty much at its own rate and still keep ahead of the competition. Knowledge management is being used to increase the pace of product development. For example Ford has used it to cut the design and development times on new models. Both SmithKline Beecham and Glaxo Wellcome have made it an integral part of researching new drugs, pooling the results of thousands of experiments to drastically cut lead times.
Increasing Cross Functional Working within Organizations: one result of total quality management is that functional barriers are being eroded as specialists come together on specific projects. The benefits are plain but impose severe challenges in managing different skill-sets so that individuals can work efficiently in often ad hoc groups and not lose touch with their background. Equally KM is being used to allow different project teams, often geographically disparate, to take advantage of each other's work rather than reinventing the wheel.
Increased Transparency between Organizations: more and more companies are benchmarking themselves against the best in class or world-class practices of others. This includes deriving best practice models from suppliers, customers, competitors as well as others. The ability to import techniques in enough detail that they can be successfully adapted was one of the earliest uses of knowledge management (although it was chiefly not termed as such). Companies such as British Steel in the UK and SmithKline Beecham have also been very active in distributing best practice across business units.
Increased Staff Mobility: People are moving between organizations at a faster rate than in the past. Partly this is because of social and economic changes that tie staff less securely to a particular place or role. Staff turnover has also been fuelled by the downsizing drive of the last ten of so years. Whether staff are leaving voluntarily or not, companies are beginning to realize that knowledge is leaving with them - and often going to competitors who may be better able to exploit it. Sometimes this is as explicit as losing key project personnel who have important knowledge of products and processes. However, a number of companies have laid off workers that they saw as low-skilled only to find that they processed vital knowledge about their work, which was totally undocumented.
What Sort of Resource is Knowledge?
Knowledge is a commodity, just like any other. It can be useful to think about knowledge as usable - and useful - information. Like any other commodity -oil, for instance -knowledge needs to be obtained, processed and delivered to the people who need it. Like any other commodity, some types of knowledge are more useful and easier to 'refine' into usable and useful 'product'. The problem with knowledge as a resource is that is intangible and often latent -it does not seem useful until it is needed.
One way of treating knowledge as a commodity is to divide it into 'hard' and 'soft' categories. Hard knowledge is documented and structured. It exists in files and databases. Hard knowledge will include sales figures, project documents, research results, news services, market intelligence, human resources data, quality methodologies and production forecasts. Even so, there are often still problems 'mining', 'refining' and 'distributing' the product to the people who need it. Massive Enterprise Resource Planning systems can, in some cases, help this process, but such systems require a heavy capital and revenue investment
Soft (or tacit) knowledge is often undocumented and fragmented. It exists in people's heads, or in scraps of notebook in a desk drawer. Soft (or tacit) knowledge will include minutes of meetings, the results of brainstorming sessions, training feedback and 'did you hear about...' gossip. The main problem is that the company does not even know it has this knowledge. This knowledge is the equivalent of oil in deep, and stormy waters. It is difficult and expensive to obtain. It could be worth a great deal -or worth very little.
This is why KM projects generally begin by getting a grip on hard knowledge. However, it is worth bearing in mind that the two types of knowledge are gathered and distributed in different ways. As we've seen, Knowledge is just like any other commodity. The work of obtaining and refining knowledge falls into three categories.
The first category covers the planning knowledge capture and storage. One way of doing this is through developing a knowledge management map. There are four steps to producing a knowledge management map.
Step One: What do the users want and need? The users needs and the business goals that support them are key to deciding the map's boundaries, content and detail. This involves establishing the principal users and prioritizing them, rather than trying to appeal to every possible need.
Step Two: What information can be included? The basis of map-making is the initial surveying which identifies the principal features to be recorded.
Step Three: Analysis and selection: after the initial survey, further analysis is done on additional factors from a large range of sources so that a consistent framework can be built up. These factors and features must be linked so that the map can form a consistent whole.
Step Four: Designing the map: the goal is to produce a final product that can be read accurately by a range of users with different mapping skills. The key skill is to simplify complex and multi-layered information without diluting its value.
One useful way of looking at the type of knowledge that you want to capture is to ask the following questions:
Who knows this?
Every organization has people with specialist knowledge either of a general area or a specific issue, such as a particular customer's warehouse system. Sometimes that knowledge is relatively public - it may be the only thing they do and in the job title - but more often it represents a collection of information caches they hold as part of the practical make-up of their role. It may even by something based on a previous very different role, perhaps in another organization.
The question of who knows also involves groups of individuals - whether a team working on a particular project or a more ad hoc 'community' of knowledge. This is complicated by the fact that the network may be distributed, have ceased to exist at some point in the past or may even not know they were ever a network in the first place.
- I've got a meeting with a customer tomorrow morning who stopped doing business with us two years ago. Does anyone know why?
- I'm doing a training course for my staff on measuring customer satisfaction. Who has done this sort of thing before?
What do we know?
This is what the US army calls ground knowledge - experience of past operations with lessons and information to be used to present ones. It is what business might call best practice based on the past. This covers specific projects as well as wider activity such as acquisitions, setting up new businesses and change management programs.
The common problem is that many individuals involved may have either left the company or moved into totally new areas. It is also related to an issue that mature markets face in that the reason for pursuing a particular strategy is often lost in time. Additionally, companies often neglect to properly record failed ventures, resulting in the same dead-end being explored over and over again.
- This product has been under-performing in that area for years. How did we initially make it successful?
- We are thinking about outsourcing our IT maintenance and I seem to remember that option being rejected five years ago. Why?
Where is this knowledge?
Companies spend an enormous amount of time on research, whether on new products or existing markets, and then burying it. The cataloguing of this vital information often means that it only serves the immediate needs of the organization. The result is either that research is done again or that past work does not provide short cuts to present work. As above research on truncated or failed projects can be the most difficult to access.
Successful knowledge management depends on efficient archiving and, just as importantly, making it accessible across the organization. This is partly a technical issue but is as much to do with creating a culture that rewards sharing research beyond its value to the individuals who have created it.
- I'm researching suppliers in Poland. Surely we've done work on this but where is it?
- A customer is asking us to redesign a component and they say they did some joint research with someone here in the past. But they can't remember who.
Why do we do it?
Mission statements do not a strategy make. Senior managers often assume that all staff know what the business goals are - and why they are. In fact the 'message' often gets lost in translation or was never fully understood by any participants in the first place. This is perhaps the softest area of the four, depending as it does on indefinable cultural assumptions as much as on official channels of communication. The two may be completely at odds.
- We have always had a close relationship with this supplier. What's the story?
- For years we have researched this market and although it seems profitable, the decision is always no from senior management. Why?
Knowledge Capture and Distribution
Once you have a plan for knowledge management, the next stage is to ensure that dedicated administrators generally do this, with input from users. The key here is that the user receives as much as he or she needs to know, and no more. And knows when that point has been reached. E-mail systems and database access tools are the basic building blocks. Beyond that is the more intelligent 'push' technology that enables users to be fed the information they require as they require it. The other main factor in distribution is to what extent a system creates a community of knowledge consumers and contributors rather than isolated individuals.
Setting up knowledge communities
A community can be defined as those employees who both contribute to and consume the content of the KM program. Successful ones are such because the users have had an important role in building the program themselves. This gets over the well-known problem of people being reluctant to adopt ideas imported from elsewhere in the company, the 'not invented here' syndrome. Involving users at every stage of the program development means they are likely to feel the overall concept and structure was invented here even if the specific piece of knowledge was not. Below we set out some of the techniques and mechanisms which make-up a community.
Knowledge directories and maps
One of the simplest, but potentially massively useful, components of a program can be a knowledge map; a concept pioneered by the management consultancies. At its simplest it is a 'Yellow Pages(tm)' of all (or perhaps to begin with key) employees and what they know.
For instance, a particular marketing manager's listing might include the following key facts:
- Key client contacts and history
- Company projects worked on in the past
- Consultancies and training companies he or she has used
- CV or resume including the fact that s/he is currently doing an MBA project on supply chain relationships in the textile industry
- That s/he has access to an executive box at the theatre or a leading football club.
The listing would also include full contact details. A lot of soft knowledge is just not conducive to documentation - a three-minute phone call may be all you need. This approach also recognizes that official hierarchies are not always accurate: the official key account manager of a customer who has been in the job two months may be much less use than a junior member of staff who has been there five years.
Much of this initial information can be gathered using a thorough employee survey - it should also be part of the basic induction process for new staff. A basic Yellow Pages can be developed to become a more complex knowledge map by doing what Microsoft do and have 'competence levels' in more than 400 fields and disciplines so that one can quickly determine how much depth of knowledge someone has. A sophisticated map will also begin to create links between listings, allowing one to quickly pool information from a number of sources.
A number of companies, again pioneered by consultancies, have begun to organize regular knowledge fairs. These are essentially internal exhibitions that showcase the most important and innovative projects going on in an organization. The point is to help employees get face-to-face with others who may be doing related work, in either content or method. These initial contacts can then be supplemented by e-mail, videoconferencing and so on. Some knowledge teams have expanded this concept in include both exhibitors and delegates from key customers and suppliers.
One of the major problems with knowledge is that if you don't catch it will eventually leave. One of the common tools to prevent this is the use of detailed exit interviews for employees who are leaving or retiring. This will help to capture knowledge about particular processes or projects and give employees filling those posts a helping hand. Some companies videotape these interviews. The flip side of the coin is to have detailed entrance interviews for employees joining the company or moving from a different function or business unit.
Many organizations use external consultancies but few really make an effort to record the knowledge they are in effect renting. Indeed consultants commonly express surprise at the lack of questions their clients ask about what they know. An understandably less common comment is that they can end up doing essentially the same work for different parts of the same organization because no one is learning and sharing. These efforts also apply to training companies. Too often the results of an expensive training course sit on an employee's shelf, or in an employees head rather than being added to the corporate know-how.
Passing on the results of experience from senior to junior staff can be extremely valuable but is rarely formalized. A number of companies, particularly in the car industry, have implemented a system where it is part of senior mangers' responsibility to pass on their knowledge to subordinates. This is made an explicit part of the measure of their own performance. This is important - a company's culture and office politics often makes senior managers reluctant to hand over the fruits of their experience to ambitious underlings.
One of the tenants of knowledge management is that quick chats around the drinks machine are an important avenue for sharing knowledge. However, companies rarely put any store by it and indeed can actively discourage 'gossiping'. The increasing number of workers who work remotely can also destroy this informal networking. The KM system, with its e-mail network can help in this regard. Another common technique is to introduce more coffee breaks (although still keeping them short) into corporate gatherings so people have a chance to make contacts that can then followed up remotely. Ernst & Young in the US, for instance has a 'Donut Day' every fortnight when everyone downs tools for a while and is encouraged to mix informally with staff in other offices.
Knowledge Management and Development
It is at this stage that input is filtered for accuracy and relevance to the business strategy of the organization. Critical technologies are search engines, data mining algorithms, analytical processing tools and publishing systems. The complexity of this process will be driven both by the nature of the information gathered and its intended use. The next stage is to organize, analyze and link this knowledge in a way that gives it as much value as possible.
It is less than helpful to talk about the value of knowledge and its contribution to organizational success but not to reflect this in the way employees are rewarded. In most traditional organizations, individuals advance their careers by keeping information to themselves and only releasing it at advantageous times and to certain people. Even if people are not particularly ambitious or secretive it is unlikely that they will put effort into contributing to a knowledge database if there is nothing in it for them. In the same way, it is not normally a source of kudos to take an existing idea or method and re-apply it, rather than inventing something yourself. Indeed in many disciplines, such as engineering, it is explicitly frowned upon.
Part of solving this problem is to make staff feel secure about sharing knowledge, that this isn't some kind of trick to suck all the ideas of the workforce and then fire them. The concepts behind KM need to be communicated effectively. However, merely explaining the benefits of KM generally is not enough - it will require you to change the culture of reward and advancement. Many of the management consultancies now base part of each consultant's salary on their 'knowledge mobilization activities'. Telling others about your projects' success - or failure - needs to be explicitly seen as a positive career move. Similarly, making use of existing knowledge rather than reinventing a slightly different wheel should be celebrated. Texas Instruments call it: 'Not invented here but I did it anyway'.
Whether you decide to appoint a manager with sole responsibility for knowledge management clearly depends on the size of your business. Many large companies have very senior managers with learning, knowledge or intellectual assets as part of their job title. Even if you do not appoint a dedicated person it is vital that you have someone at a high enough level to take executive responsibility for this area. Either way, defining the role and having the right person fill it will be a critical success factor for any KM project.
In order to carry out this task, you need to return to the 'mapping' process in the first stage. You may wish to look at the way in which knowledge is distributed amongst staff, customers and suppliers and (or even perhaps competitors).