The Knowledge Evolution: Expanding Organizational Intelligence essay

Introduction

Competition is the foundation of a market economy, that ensures effective redistribution of resources in the economy, helps to meet the needs of people and organizations, increase the efficiency of the enterprises. On the other hand, in the conditions of strong competition survive only the strongest organizations which are able to provide competitive advantage. Modern economy imposes special requirements on the operation of organizations and their competitiveness. In the information economy, or the “knowledge economy”, the leading role in competition has knowledge of people, their skills, as well as access to information. Knowledge and intellectual capital are the main competitive advantage of the businesses and the economy as a whole.

In this paper it is considered the importance of knowledge management and development of intellectual capital of organization for increasing the competitiveness and performance. Theoretical basis are the modern theories, methods and approaches to knowledge management. The main hypothesis is that during the transition to an information economy, the decisive factor of competitiveness of the company are intangible assets and, in particular, knowledge. Knowledge forms the basis of intangible assets, which, in turn, make organization competitive.

Knowledge management

KNOWLEDGE AND ITS IMPORTANCE FOR ORGANIZATIONS

Knowledge management is one of the basic concepts of management, affecting the business, along with the concept of total quality management (TQM),  reengineering  processes, e-commerce methodologies Balanced Scorecard, EVA, ABC. That is, knowledge management, according to the general view, in the near future will be key concept that defines the paradigm of management in general. (Teece 1998)

Organizations nowadays increasingly rely on their intellectual assets as opposed to tangible assets that they manage. Solutions for knowledge management are becoming key to the creation and maintenance of intellectual capital assets and their use to create economic value. Solutions in the field of knowledge management enable individuals, teams and organizations to achieve much more in the creation, transfer and obtaining of knowledge. (Teece 1998)

There is a great difference between data, information and knowledge. Information is a collection of data, which has meaning and significance. After passing through the filter of perception and thinking (cognition), the information stimulates multiple steps and activities, and leads to the creation of knowledge. All knowledge constitute an intellectual capital of the organization, which is composed of human (knowledge and skills of workers), structural(patents, licenses, inventions, corporate culture, information technology) and client (brand name, brand image in the market and customer information, customer relationships) capital that in the process of their interaction are able to transform and to ensure the increase of capitalization.

Human capital of the company is the sum of the collective knowledge of employees, their creativity, skills and ability to find solutions to problems, leadership, entrepreneurial and managerial skills, as well as mobility of workers, making it possible without increasing wage costs quickly and accurately perform assigned tasks. (Liebowitz 1999) The increase in human capital is possible through gaining knowledge by employees who can benefit the company, and through better use of their knowledge. In the organization and outside it there is a continuous process of knowledge transfer. Unlike tangible assets, which decrease to the extent of their use, intellectual assets, by contrast, only increase. Knowledge creates new knowledge, ideas  generate new ideas, and people can share their knowledge and gain other knowledge in return. It can be argued that knowledge can become obsolete over time, and then the intellectual assets are reduced. But there is an opportunity to update knowledge and to create a “metaknowledge”. This means that when updating a specific knowledge, it is possible to double it, and thus increase the intellectual assets of the organization. (Liebowitz 1999)

Knowledge comes in many forms in the organization (in the process of recruitment, training, study of literature, the obtaining of licenses), develops during various working activities. Thus, in every organization, regardless of the scope of its activities and the degree of its interaction with the outside world, takes place the process of creation and development of knowledge.

Knowledge, which is used in organizations can be specific and general.  General knowledge, which have similar organization in the industry, include knowledge of production process and the basic industry technologies. To the general belongs also the knowledge shared by all organizations (universal economic principles, knowledge of fundamental laws, etc.). General knowledge is necessary for any business, but it’s hard to create a competitive advantage based on this knowledge. Special knowledge includes know-how, market research specific to the product, special corporate culture, specific management practices, original ways to motivate staff and other special knowledge. It is the most likely source of competitive advantage in the organization, because it forms the distinctive capabilities. (Teece 1998)

Depending on the area of ​​knowledge it is possible to name technological knowledge (knowledge about technology to create the product), market knowledge (about the groups of consumers, pricing, methods of product promotion, etc.) and macroeconomic knowledge (about the trends in currency exchange rates, foreign economic trends, prospects for increased domestic demand, etc.) It is also necessary to distinguish between individual and group knowledge. The traditional view is based on the fact that knowledge belongs to the individual, and the group is just a simple sum of the members of this group, so that group knowledge is the sum of their knowledge.  But there is another, modern point of view, according to which a group of people forms a team – a new entity with its unique characteristics. Under this view, we can talk about group behavior and group knowledge, as well as knowledge management. Thus, knowledge can be not only individual, but of a group of people. (Liebowitz 1999)

1. Gates, in his book “Business @ the Speed ​​of Thought” writes about the need to improve the predictive capacity of the organization, or corporate intelligence quotient (IQ). However, he has in mind not only the number of smart employees, but also the accumulation of knowledge in the company and the free flow of information, which allows employees to enjoy each other’s ideas. The ultimate goal of a high corporate IQ is that the group could develop ideas and implement them as effectively as a one man, concentrating their forces on solving the problem. “When recruited a critical mass of people with high IQ, working hand in hand with each other, the potential of the company simply flies up to heaven. This mutual stimulation generates a lot of new ideas and promotes the exit of less experienced employees at the highest levels of skill. The company as a whole begins to work better.” (Gates B. 1999)

However, knowledge alone can not solve all the problems of effective organization. Thus, there may be present quite advanced understanding of activities of individual employees, knowledge about the prospects, of the factors (“know why”). At the same time without proper motivation it is difficult to expect a high return on such knowledge. Construction of new knowledge is a comprehensive, interactive and non-linear process. Professional managers must act on all levels to create new knowledge: cognitive, advanced, system integration, creative and intuitive – and therefore to manage knowledge through training, incentives, appropriate organizational structures, control of the results.

Some researchers, including Stonehouse G. (1999), pointed out  a separate group of organizational knowledge. Organizational knowledge is a distributed set of principles, facts, skills, rules that provide information and decision-making processes, behavior and actions within the organization. Organizational knowledge is developed based on the knowledge of everyone in the organization. (Stonehouse 1999)

Organizational knowledge is manifested in the plans, specific resources, individual and group competencies in practice and embodied in the technology. (Liebowitz 1999) Organizational knowledge can be explicit, and then it is reflected in the instruction; can be implicit, and then manifests itself in the routines and stable nature of the actions of members of the organization. Explicit organizational knowledge can be stored centrally and transmitted via information systems; and those decisions that require explicit knowledge should be taken where such knowledge is concentrated. In other words, such decisions should be delegated to individual employees of the organization who possess the required implicit knowledge, or all of the solutions that require this knowledge should be made with the help of experts. In any case, Stonehouse argues that it is necessary to have reason and logical conclusion to be able to extract knowledge from existing information. In order to build new knowledge, the organization must take action to stimulate getting of information and transform it into knowledge. (Stonehouse 1999)

It is important that managers have the knowledge of its business and activities. It is also important that they understand the very nature of this knowledge in order to create an environment in which knowledge is generated, stored, distributed, coordinated and primarily valued as a source of distinctive capabilities and competitive advantage. In order to enhance the overall business performance, it is important that knowledge is used in every sphere of business. The distribution of knowledge is vital to the organization. (Stonehouse 1999)

A unique feature of knowledge is that it is one of the assets of the organization, which increases exponentially when shared. Thus, when sharing knowledge throughout the organization, we increase its property to add value to the product more than proportionately. Managing organizational knowledge aimed at the development of organizational knowledge through the formalization of the content, structure and procedures that promote the creation and sharing of knowledge. (Stonehouse 1999)

The most successful in terms of organizational knowledge organizations Stonehouse (1999) sees as intelligent. Only intelligent organizations are able to develop abilities based on knowledge.  Only intelligent organizations are able to learn how to better get knowledge, and understanding the nature of their knowledge, they are able to improve its creation and use. Intelligent organizations do not just want to learn about how to better run their business, and trying to understand the processes of individual and organizational learning.

The famous American professor of management at Stanford University Paul Romer called knowledge the only unlimited resource, which is only increasing when used, and the other a professor of management, Peter Drucker identified knowledge as the basis of competition in the new post-capitalist society.

KNOWLEDGE MANAGEMENT IN THE ORGANIZATION AS A WAY OF INCREASING PERFORMANCE AND COMPETITIVENESS

The term “knowledge management” appeared in the literature on management of organizations in the early 90s of the XX century, marking the birth of a new direction in management sciences. The time of origin of this trend can be considered in 1993 when the first conference held in Boston, devoted to issues of knowledge management (KM) in companies and organizations.

At present, this trend is evolving rapidly. The field of study of knowledge management include the following main
questions:
● identification of knowledge (intellectual assets) in the organization;
● dissemination and sharing of knowledge among the staff of the organization;
● concentration of knowledge to solve non-standard, including the innovative problems and challenges;
● generation of new knowledge in the organization.

The purpose of knowledge management in the organization is to increase its intellectual assets and thus its effectiveness. To do this it is necessary to organize:
● storage of information and knowledge, with have potential value;
● dissemination and exchange of valuable knowledge and information among employees of the organization;
● training of employees and “outsourcing of knowledge”.

Knowledge management is systematic in nature. This is a process of compilation, use and reuse of information or direct knowledge, experience and professional skills to achieve a particular benefit, goal, to strengthen the organization and increase its competence. Determining the nature and content of knowledge management, it is advisable to take into account that creation and use of knowledge takes place not only onthe individual but also at the community level.

Thus, it is possible to propose the following definition of knowledge management: a set of managerial actions on methods, techniques and forms of organization of social relations in the sphere of production, distribution and use of knowledge aimed at improving the efficiency of these processes and implemented in specific economic framework (companies, institutions, units, and various forms of cooperation, etc.) Also knowledge management can be explained as a process through which organizations can profit from the stock of knowledge or intellectual capital in its possession. The organization creates value from its intellectual assets and assets based on knowledge in the process of management. Knowledge management is the engine of innovation and obtaining of new knowledge.

Lets consider the importance of knowledge management. In today’s economy, driven by information, the organization sees much more value in its intellectual assets than physical assets. Knowledge management helps to maintain the knowledge that must be shared. Furthermore, knowledge management helps an organization to do the following:

• To stimulate innovation. Knowledge management provides a framework of building electronic and social networks to develop new products or services, it promotes and provides access to diverse ideas, thus giving others the opportunity to benefit from them.
• To promote co-operation. Knowledge management increases the opportunities for cooperation, it enriches the exchange of explicit and indirect knowledge between people, it also encourages the free movement of ideas.
• Encourage the use of learning opportunities. Knowledge Management facilitates and accelerates the learning process, it creates opportunities for individuals and groups to use this knowledge in practice; helps to bring information to the right people in an understandable context, which is aimed at addressing problematic issues; it emphasizes the importance of individual learning and raises it to an organizational level.
• Increase social capital. Knowledge management increases the amount of transfer of individual knowledge in the organization, it facilitates the process of exchange within and outside the organization, at different times and in different places; and it also connects people with the necessary direct and indirect knowledge, with those to whom such knowledge is needed to perform job duties.
• To attract and retain human resources. Knowledge management increases the results of training by emphasizing the value and benefits of knowledge for employees; it helps to organize knowledge that people have, that is, their “know-how” and “know-what”; it contributes to a successful career.
• Create and use the structural capital. Knowledge Management turns intellectual capital into structural capital, and it focuses strategic thinking on the use of knowledge, as opposed to concentration on a budget and profits.
• Increase productivity. Knowledge management helps to rationalize operations and reduce costs, improves the effectiveness of training by eliminating unnecessary or redundant processes, it makes a direct contribution to the ultimate goal / mission.
• Share best practices and processes. Knowledge Management helps to share best practices in the organization; it provides a framework for knowledge and innovation; it establishes criteria for individuals and teams within the company and externally, and it helps new employees adapt quickly to the culture of the organization.
• Provide leadership and decision making. Knowledge management provides the necessary information in a context that helps decision-making process; it generates new knowledge in the process of knowledge sharing and cooperation in the joint decision-making processes; and it uses the information and knowledge to bring the actions of the organization in line with its mission and vision.
• Increase the level of customer satisfaction. Knowledge Management improves customer service by streamlining their response time, it helps organization to focus on the needs of the client; it also improves the results and lessons learned from clients using the products/services provided.
• Create a competitive advantage / market differentiation. Knowledge management assists in achieving the highest quality of knowledge; helps to get expertise and it focuses knowledge of the organization on the needs of clients while achieving its business missions / goals.

The main purpose of knowledge management is increasing and improving the strategic knowledge to improve organizational performance. This goal is achieved by providing a positive synergy effect of explicit and implicit, collective and individual knowledge, by organizing networking between employees (through personal contacts, electronic and other means of communication) and the environment for the efficient exchange of knowledge and information, enhancing the effect of increasing returns of knowledge use.

The most popular and widely used today are the following knowledge management strategies:

1. The strategy of knowledge as a business strategy that involves the formation and use of “best” of knowledge in any job. Knowledge becomes the center of all activities of the company, used to create customer value, and in some cases the final product. Typically, this strategy is used by consulting companies. (Bellinger 1997)
2. Intellectual capital management strategy assumes that all knowledge in the organization and management system are aimed exclusively at the creation, maintenance and development of intellectual assets – patents, technology, know-how, etc. (Bellinger 1997)
3. The strategy of knowledge formation assumes deepening of the existing and generation of innovative knowledge (conducting research, innovative solutions and continuous improvements) that enhance the competitiveness of the company. This strategy is usually made by higher education institutions (for example, the Massachusetts Institute of Technology, which trained more than 40 Nobel laureates) and research laboratories, manufacturing companies (Palo-Alto Laboratory in the company of Xerox, exploring the possibility of improvement of copiers and develops innovations in this direction). (Bellinger 1997)
4. Knowledge-sharing strategy focuses on the systematic exchange of knowledge – obtaining, structuring, storing, use and distribution between certain workers or teams. Such a strategy was implemented by “Kodak” when its competitor “Fuji” brought to market a new disposable camera that uses 35 mm film. To accelerate the development of a similar product, “Kodak” has created an integrated database for the design and manufacture of the product, which received on daily basis the results of the work of all engineers and combined all individual effort into a single knowledge. Access to the shared knowledge base has allowed in a short time to create a better product than the competitor. (Bellinger 1997)

Thus, these knowledge management strategies can be used in any organization: both at the industrial enterprise, and at the educational institution. As a result, such strategy should increase the competitiveness of the organization and increase the stability of its competitive advantage.