“Before we measure something we must ask whether we understand what it is we are trying to measure.” (Gray et al, 2015)
Critical discussion of the above statement in relation to effectively developing
assignment point 2
Module ST4S39-V1: Strategic Systems Thinking
Some intangible objects and concepts have value, yet they are unquantifiable in real life and in organizations. Can these be emotion, ambition or even knowledge? What we tend to ask ourselves is that can that value be measured? Further if the value cannot be measured, does it still possess an economic value? Can that value be acquired or utilized or stored or shared (Edvinsson 1997, Edvinsson and Malone 1997). It is under this background that Gray et al (2015) opines that prior to the measurement of something, the first step is to understand what is being measured. Edvinsson (1997) studied The Hidden Value of Companies and says that executives are rethinking quality management, core competencies, and the value of employees, their knowledge.
Common expression that ‘Knowledge is power’ has been with us for a long time. Wenger and Snyder (2000) have the same view when he opines that modern day-to-day economy is “run” on knowledge. To create, acquire, and share value for better strategic management and productivity, organizations have to prioritize on knowledge management systems. Another business expression which states that “what is not known cannot be managed” is often in our discussions. Thus we are faced with the task of having to measure knowledge. Knowledge is conceptual and abstract, and thus measuring it has its challenges.
Community of Practice (CoP) is a community brought together by common interest where knowledge is shared, and learning is put in practices. It provides its members with a sense of belonging, and a definite seat. According to Wenger and Snyder (2000) a CoP have the ability to improve an organisation, and it’s output is knowledge.
The concept of Intellectual Capital (IC) measurement ties in with whether or not knowledge can or cannot be measured. Networks have been loosely called breeding grounds for IC and value creation (Tichy et al, 1979). IC is a valued intangible asset in an organization which has no physical form yet it has the capacity to generate profits
Performance measurement is attempted by all organizations to find out if set indicators, objectives and goals have been achieved. According to Lebas (1995) performance is ‘potential’ and that potential has to be measured.
My company, African ABS-TCM is a private company with headquarters in Nairobi, Kenya. ABS-TCM provides animal genetics and related products to farmers in Sub Saharan Africa. It maintains a fully staffed animal genetics distribution facility, feed analysis laboratory, liquid nitrogen production and distribution, training and consulting services (https://www.abstcm.com)
This article attempts to critically analyse the key topics in strategic knowledge development and management in an organization by scrutinizing Gray et al., (2015) statement: “Before we measure something we must ask whether we understand what it is we are trying to measure.” The key topics in relation to the statement are: Knowledge Management, Intellectual Capital (IC), Communities of Practice (CoP) and Performance Management. Links, interconnections and interrelationships between these topics will be developed and analysed to shed light in knowledge systems as a whole.
The methodology used is relevant literature reviews in journals, articles, published books and module notes. An analysis of terms used, prior research done and case studies in relation to the topics will done. At the same time the strategic knowledge base of my company ABS-TCM will be reviewed.
2. DISCUSSION AND ANALYSIS
2.1. Knowledge Management and Environment (KM)
Nonaka et al., (2008) explores KM as a global concept which is relevant to any company that wants to prosper and thrive in the global knowledge economy. Researchers and authors have no universally agreed definition of knowledge. Johnson et al., (2011) define knowledge as consciousness, awareness or familiarity gained by learning or experience. KM Consultants (tutor videos) defines knowledge as information with value.
The British Standards Institute argue that knowledge should have descriptions like conceptual knowledge, explicit knowledge, tacit knowledge, symbolized knowledge and systematic knowledge. But the Americans counterparts define it has “a fluid mix of framed experience, conceptual information and expert insights that provides a framework for evaluating and incorporating new experiences and information. It originates and is applied in the minds of knowers. In an organization, it often becomes embodied not only in documents or repositories, but also in organizational routines, processes, practices and norms” (Davenport and Prusak, 1998).
There are two main types of knowledge namely: Tacit and Explicit. The simplest and best way to differentiate them was given by Polanyi’s Iceberg metaphor (Polanyi 1966) who argued that, iceberg has the part one sees (explicit knowledge) and another part that is submerged (tacit knowledge) and cannot be seen (Figure 1). Edvinsson (1997) likened knowledge to a tree which one sees (explicit) and the root system which cannot be seen (tacit). Thus, explicit knowledge can be communicated, documented and familiarized while tacit knowledge cannot be expressed in words; “we know more than what we can tell”. Likewise the root system should be deep, well developed and strong to nourish the tree to bear good fruits..
Figure 1 Polanyi’s Iceberg Metaphor
Tacit knowledge is defined as knowledge bordering on expertise, practical skill, involving execution, and according to Nelson and Winter (1982) must be acquired, learned and accumulated through experience. Kogut and Zander (1992) defines tacit knowledge as a ‘procedural know-how’ which is only resident in the human mind. It is slowly transferred though can be acquired through observation and imitation. Choo (2002) argues that it is expensive and requires complex interactive structures to transfer. Explicit knowledge differs from tacit knowledge in that its transfer and use is inexpensive (Kogut and Zander, 1992). Due to these characteristics it can be misappropriated outside the company hence companies set up definite boundaries for it (Teece 1998).
Ahmed’s (2013) Tutor video, define KM as a planned and an ongoing management of activities and practices for leveraging knowledge to enhance competitiveness through better use and creation of individual and collective knowledge of resources. The British Standards Institute define KM as creation and subsequent management of environment which encourages knowledge to be created, shared, learnt, enhanced, organized and utilized for the benefit of organization and its customers. In an earlier definition, Demarest (1997) defines KM as systematic foundation, observatism, measurement and optimization of the company’s knowledge economies. These KM definitions can be seen on the case study of the Essex Police’s ‘Plan on a Page’, where strategic KM systems and frameworks were used innovatively to create performance indicators within the Police force.
What does tacit and explicit knowledge and knowledge management have to do with organizational knowledge? This brings the analysis to SECI model of knowledge dimensions. The SECI model is for knowledge creation which explains how individual and collective tacit and explicit knowledge are converted into organizational knowledge. The SECI model has four knowledge dimensions namely socialization, externalization, combination, and internalization; which together form the acronym “SECI”. The SECI model was originally developed by Nonaka (1990) and later further refined by Nonaka and Takeuchi (1995) as seen in Figure 2. showing modes of knowledge conversion under the so called SECI Model.
The SECI model appreciates the dynamic nature of knowledge and knowledge creation as well as providing a framework for management of the relevant processes. It has been criticized because it’s based on a study of Japanese organizations, which heavily rely on tacit knowledge where employees often than not stay with a company for life. Other critics argue that, it is based on the concept of linearity with questions like: can the spiral jump steps? Can it go counter-clockwise? Since the model is bi-directional with only two nodes, the answer is yes, but so what?
Figure 2 The SECI Model and knowledge creation.
But how does this connect with IC, CoP and PM? These themes revolve around the need for knowledge, its creation and acquisition, sharing and use of knowledge by organizations. Nonaka and Takeuchi (1995) underscore the importance of developing both tacit and explicit knowledge. Chevron Texacos case study gives good example on how these two main knowledge types are developed using Communities of Practice (CoP). Explicit knowledge is being developed by creating and developing networks internally and externally through databases, benchmarking data and previous studies. Establishment of Global Refining Networks provide rapid connection between staff seeking information and those with fitting expertise and knowledge. Tacit knowledge in case study was developed when members of CoP interact (from annual forums to collaborative websites, document libraries to regular teleconferences). These networks help members locate and consult with experts, find solutions to common problems, share and adopt successful practices and lessons learnt, and suggest improvements to current tools and processes in their domain. This results to knowledge creation which further results to cost-saving and performance improvement.
In my organization (ABS-TCM Ltd), knowledge and skill is key in increasing profits, opening up new market centres, scaling up based on best practises and in consultancy work. Thus knowledge management, though not measured is done on a daily basis. Based on the SECI model, ABS-TCM has been and continues in creating, sharing, storing and using knowledge. Though its for profit company, like the Essex Police department, ABS-TCM opines that knowledge within and outside the organization will lead to more satisfied customer. It has the slogan which goes like this: Science, Service and Success. Thus in whatever we do, we base it on science and knowledge acquisition and creation, knowledge banking, transfer and use for both our staff, stakeholders and customers.
Most of our staff are well trained to post graduate levels and have fast experience and skill in livestock production, improvement, breeding, feeding and livestock products and services. Through meetings and brainstorming we create and share knowledge though this is not structured like in Chevron Texacos case study. Neither do we measure the hidden value in company as in Choong’s (2008) article on Skandia AFS.
2.2. Intellectual Capital (IC)
Intellectual property is the value of an organization’s employee knowledge, skills, business training or any proprietary information that may provide the company with a competitive advantage (Wikipedia). Broadly it’s the collection of all informational resources a company has at its disposal that can be used to drive profits, gain new customers, create new products or otherwise improve the business.
Others define IC as the intangible value of a business. Rastogi (2003) defines it as the holistic prowess and potential of a firm, for making or creating value. IC has 3 primary components in an organization: its people (human capital), the value relating to its relationships (relational/ customer capital), and lastly, everything that is left when the workers go home (structural capital), Edvinsson et al (1997) and Steward (1997) argues that it as the sum of everything everybody in a company knows that gives it a competitive edge Its a term used to try to account for the value of intangible assets not listed explicitly on a company’s accounting books (Brooking 1997).
2.2.1. Human Capital
This is invested through education, training and enhanced benefits that lead to an improvement in the quality and level of production. It’s defined as the stock of knowledge, habits, social and personality attributes and creativeness, in a person’s ability to do work productively (Goldin undated). This concept can be applied to job-assignments inside my company (Robert and Michael 2006).
2.2.2. Relational Capital
It’s market, power, and cooperation relationships between firms, institutions and people, which stem from a strong sense of belonging and a highly developed capacity of mutual cooperation to achieve shared objectives and goals. Relational dependency may be vertical or horizontal, either up or downstream, and collaborative or cooperative (Edvinsson1997 and, Mohan and Mark 2005).
In my firm, customer capital can be seen in the strength and loyalty of customer relations which enables strong customer base, high customer satisfaction, and high repeat business. Good financial well-being for all parties, and price sensitivity (Luthy, 1998 and Choong, 2008). Because of its high end value of products and services, ABS-TCM has a strong client base of individuals, groups, cooperatives, CBOs, NGOs and local governments.
2.2.3. Structural Capital
Structural capital consists of the supportive infrastructure, processes, and databases of the organization that enable human capital to function. It’s owned by an organization and even remains when people leave. It includes organizational capabilities, routines, methods, procedures and methodologies (Ehsan et al., 2016). It supports non-physical infrastructure that enables human capital to function. Overtime my company has accumulated wealth of information, data, databases for the last 20 years. Other examples of structural capital in my company are the organogram and reporting structure, the accounting system, information systems, computer systems, framework of consultancy, research and development. According to Roos et al., (1997) structural capital has three subcomponents, namely: organizational capital, process capital and innovation capital. My company has a strong base of these subcomponents.
IC encompasses all the people, ideas, relationships, experiences, skills, training etc. that creates more value for the company. The Skandia AFS case study analysis illustrates how IC can be measured. As Choong (2008) reports, one of the widely used methods of measurement is the balanced scorecard method. A base ratio was developed for each of the terms Innovation, Number of Customers and Development. Measurement is important because it not only aids in the systematic management of these hidden values, but can also provide deeper insight into future growth and reveals values vital to the organisations strategic future (Edvinsson, 1997). Measuring IC is dependent on subjective evaluation of these terms. This is complicated and possesses a challenge to the intelligence of a firm.
2.3. Communities of Practice (CoP)
Wenger (2004) argues that the origin and primary use of the concept has been in learning theory. The term CoP was coined to refer to the community that acts as a living curriculum for the apprentice. Thus CoPs came from informal networks (Wenger and Trayner, 2011). Wenger and Snyder (2000) reports that, it is an organizational form, made up of an informal group united by shared expertise, practice and passion. They share knowledge and experiences in creative, free-flowing ways to thread novel approaches to problems.
There are three elements of CoP namely: the domain of interest, community, and practice. Currently, this concept is being applied in many organizations including in our company where we have forums in various technical areas. These forums or CoP are potential knowledge creating avenues. A classic example of a CoP during our module study is ChevronTexaco case study. The Operational Excellence (OE) strategy (which works across all networks) assists business units to close performance gaps and meet corporate targets as well as improving on performance.
CoP in the case study is reported to have great potential for creating and sharing knowledge due to the focus on shared activities. This is because CoPs have informal structures, they provide practitioners with ample room to self-manage needed knowledge and that they can tackle tacit, dynamic and explicit aspects of knowledge sharing. CoPs are known to create a direct link between learning and performance because the same people in CoPs can also be in teams and business units. Meetings are flexible and are not constrained by time and place.
There have been criticisms on CoPs. Wenger (1998) argues that, the CoPs and organization’s relationships are not clear. Further, CoPs are composed of volunteers and trust is paramount. Thus there may be a possible conflict of interest between an individual’s interest in a particular knowledge area, and the organisations strategic drivers, which may lead to an employee to do act not in the interest of the organization. In my organizations some members within a forum have used it for personal gains when, through CoP in a livestock forum, new business opportunities emerged. The individual would source products from the distributer without the knowledge of the company.
2.4. Performance Measurement
Performance measurement enables leaders to evaluate whether an organisation’s business results meet strategic goals. To carry out this process, organizations measure their performance using different methods and criteria, including performance metrics for each business activity. Why do we measure performance? The module notes gives a number of reasons. These are to: understand the dimensions of something; record the way something works; reduce the complexity of the world; give us a sense of control; and to be able to develop.
Common Performance Management Systems for measuring PM include ‘Performance Management Systems’, ‘Dashboards’, ‘Quality Improvement Systems’ and ‘The Balanced Scorecard (as seen in the Skandia Case Study). These systems enable Managers to evaluate business results across an organization’s different units and how the different parts of an organization work together to produce business results. By seeing such interrelationships of parts (system thinking) of the whole managers make more informed decisions
To support the PM process, managers decide which aspects of performance need to be measured. To do that, they define clear: Objectives that directly affect a company’s strategy, or those that, if achieved, would help solve serious performance problems. Critical success factors (CSFs) for each objective are identified and the actions the company or department must take to achieve each objective (Robertson, 2008). Key performance indicators (KPIs) for each CSF are identified to measure how well the company, business units, projects or individuals are performing compared to their strategic goals and objectives. Well-designed KPIs provide the vital navigation instruments that give us a clear understanding of current levels of performance like in the Essex Police case study (Ap-Institute, 2016).
After deciding what aspects of performance require measure; defining objectives; identifying critical success factors (CSFs) for each objective; and defining key performance indicators (KPIs) for each CSF; targets are set for each of KPI managers have defined. Targets represent what the performance managers want to see on each KPI. PM helps develop the knowledge base of an organisation. It’s valued for its insight on whether leaders are on the correct path to the achievement of strategic goals. Worth (2016) states that KPIs chart an organization to success, measure progress, and are so crucial that the wrong KPIs can drive an organization to ruin.
PM has been criticised for the many methods one has to choose from and how one begins PM. But the successful case study of Essex Police, with their ‘Plan on a Page’ provides a good example of how PM can deliver on a company’s strategic goals.
3. CONCLUSION: SYSTEMS THINKING AND KNOWLEDGE MANAGEMENT
From earlier module studies on strategic systems thinking all these resources must be organized and utilized in such a way that the desired results and strategic goals are achieved. Thus systems’ thinking is only possible with a sound knowledge base. It calls for interaction, interconnectedness, use, sharing and holistic improvement of Knowledge Management, IC, CoPs and Performance Management within an organization.
In my organization, what is missing is recognizing and measuring hidden values as well as including the values in the accounting books. But before doing so, my company will have to make a conscious effort in understanding Gray et al., 2015 statement ‘”Before we measure something we must ask whether we understand what it is we are trying to measure.” I would like to take lead and make sure the themes analysed in this paper are applied in understanding this statement, despite the challenges.
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