The growing importance of KM

The growing importance of KM
As the foundation of today’s global economy moves away from natural resources to intellectual assets, knowledge is increasingly becoming the only basis for sustainable competitive advantage. Knowledge Management (KM) is being embraced by more and more companies. KM is becoming an integral part of corporate strategy for the following reasons:

· The market capitalization of companies today largely depends on their intangible, physical assets.
· Unlike technology, knowledge cannot be easily copied.
· KM delivers increasing returns, unlike any physical asset.
· KM helps avoid unnecessary work duplication, expensive reinvention and repletion of mistakes.
· KM minimizes the impact of talented people leaving the firms.
· KM improves the agility of the firm.
· KM can compress delivery schedules and reduce cycle time.



The economics of knowledge is different from that of other assets. The cost of producing knowledge is little affected by how many people eventually use it.

Knowledge also provides increasing returns. Unlike traditional physical goods that are consumed as they are used (providing decreasing returns over time), knowledge provides increasing returns as it is used. The more it is used, the more valuable it becomes, creating a self reinforcing cycle.

Unlike other assets, knowledge is difficult to replicate. Knowledge—especially context-specific, tacit knowledge embedded in complex organizational routines and developed from experience—tends to be unique and difficult to imitate. Unlike many traditional resources, it cannot be easily purchased in the marketplace.

Knowledge-based competitive advantage is also sustainable because a firm that already knows, is better placed to learn. Sustainability also results when an organization already knows something that uniquely complements newly acquired knowledge. Then the new knowledge can be integrated with existing knowledge to develop unique insights and create even more valuable knowledge.

The starting point in KM is framing a knowledge strategy. Knowledge strategy, effectively means identifying and developing the knowledge required for providing products or services to customers, more effectively than competitors. Identifying which knowledge based resources and capabilities are valuable, unique, and inimitable as well as how those resources and capabilities support the firm's competitive position form the core of a knowledge strategy. The strategic choices that the company makes, regarding technologies, products, services, markets and processes decide what kind of knowledge is required to compete and excel in an industry. On the other band, what a firm does know, limits the ways in which it can actually compete.

World class organizations like McKinsey drive KM by having what is called a knowledge agenda which identifies knowledge gaps and how they must be dealt with. But pinpointing the knowledge that an organization must build is not easy. There are no simple answers regarding what a firm must know to be competitive. Indeed, if the answers were so easy, knowledge would not yield a sustainable advantage. The trick is to stay in touch with customers and also understand what competitors are doing. In addition, the company should have a broad vision of how the business environment is likely to evolve in the long run and the kind of knowledge capabilities that might be required.

The 2005 MAKE(Most Admired Knowledge Enterprises) survey (For more details, visit the website of the Know network) identified the following Indian companies as leaders for their innovative & pioneering work:

· Infosys for developing knowledge workers through senior management leadership (1st place), and transforming enterprise knowledge into share holder value .
· Eureka Forbes for creating a corporate knowledge-driven culture developing knowledge workers through senior management leadership, and creating an environment for collaborative knowledge sharing.

· Tata Consultancy Services for maximizing the firm’s enterprise intellectual capital and delivering value based on customer knowledge

· Satyam Computer Services for creating a learning organization, and transforming enterprise knowledge into shareholder value.

· Tata Steel for creating an environment for collaborative knowledge and organizational learning .

· i-flex solutions for creating a corporate knowledge-driven culture, and delivering knowledge-based products / services / solutions .

The survey reports that a majority of the Asian (mainly Japanese) MAKE leaders began to implement their corporate knowledge strategies much earlier during the late-1990s. Despite the late start, the 2005 Indian MAKE Winners have reached parity with Asia’s knowledge-driven leaders on many dimensions.

One area where Indian MAKE leaders trail their Asian counterparts is in managing customer knowledge. Although the MAKE leaders from India state that they are intellectual capital (IC) driven organizations, most of them do not have in place strategies, methods and processes for actively managing, measuring and reporting their enterprise IC. They lag behind the global leaders. Indian MAKE Winners also trail in the areas of innovation, managing customer knowledge, and transforming enterprise knowledge into shareholder wealth.

India’s knowledge leaders are also concentrated in one business sector, IT. Five of the seven Indian MAKE Winners are IT companies. There is a significant gap (in the total composite score) between the seven Indian MAKE Winners and five other Finalists (Mahindra & Mahindra, ranked in 8thposition, is 8.5 points behind 7th place i-flex solutions). The result is a two-tier Indian knowledge leadership ranking table. In other words, the Indian MAKE Winners have knowledge processes which match those of MAKE leaders from around the world. On the other hand, the remaining Indian MAKE Finalists and nominees are still in the early stages of implementing KM.

But whatever be the scenario, there is little doubt that managing enterprise knowledge pays! – This year’s Indian MAKE Winners’ Return on Assets and Return on Revenues were 8.8 and 4.1 times, respectively, that of the Fortune Global 500 company median. Whether it is market capitalization, return on assets, return on revenues, or a host of ‘soft’ metrics, the 2005 Indian MAKE Winners and Finalists clearly demonstrate that adopting enterprise knowledge-driven strategies pay off – not only in the short term, but more importantly over the longer term!