Knowledge management (KM) can be defined as the processes that allow organisations to create, share and apply knowledge more efficiently, thereby generating value through their intellectual and knowledge-based assets.
Development of knowledge management
Knowledge management in its modern form developed in the mid-1980s when managers began to realise that the total value of their organisation's assets could not be described by simply considering tangible assets such as stock, office equipment, and buildings.
People began to recognise that the most valuable assets within many organisations were intangible assets; assets that no organisation could value in terms of money. Examples of intangible assets include customer and supplier relationships, internal procedures, design flair and so on, which are products of the knowledge and competence of the employees. As these intangible assets were increasingly accepted as real, more and more organisations became interested in knowledge management as an important tool in ensuring the success of their activities.
Today, KM programs are an integral part in the activities of many large organisations, which use KM to manage their intangible assets to great effect.
KM is also beginning to be standardised with agreement on good practice beginning to emerge. The British Standards Institute (BSI) is one of the organisations being active in the work.
Knowledge management process
Knowledge management (KM) is about generating value by managing the intellectual and knowledge-based assets of an organisation.
Fundamental to this concept is the distinction between explicit and tacit knowledge.
Explicit knowledge is knowledge that we can record and share with others, and which exists independently of us. Examples are reports, datasets, diagrams, manuals and photographs etc.
Tacit knowledge is personal knowledge that has not been recorded or communicated, and includes know-how, judgment, insights and skills.
An example of the difference between tacit and explicit knowledge is a restaurant review. A restaurant critic that visits a restaurant will gain knowledge about the quality of the food and service that is tacit i.e. knowledge that resides within that individual. However, upon publishing their findings, the tacit knowledge is converted to explicit knowledge, and thereby becomes accessible to everyone.
The interactions between tacit and explicit knowledge is what creates the total knowledge that an organisation needs in order for it to succeed. This process can be described by the Knowledge Circle.
As the knowledge circle shows, knowledge management is not only about capturing, storing and sharing knowledge (this is traditionally referred to as information management), but is also about effective collaboration, the promotion of best practices, measuring and evaluating KM efforts, and maintaining and improving the knowledge system as a whole.
A common misconception about KM is that it represents a way of managing an organisation's information assets using sophisticated IT systems.
However, while KM is often facilitated by IT, technology itself is not KM and the knowledge circle clearly illustrates that information management only constitutes a small part of the entire Knowledge Management process.
Benefits of knowledge management
Knowledge management (KM) is about how an organisation can use information and ideas better.
If an organisation does KM well it will be able to do more, spend less, increase its effectiveness and have people that are more satisfied with their jobs.
There are many ways in which an organisation can do KM and get benefits from it. KM can be applied to both strategic organisational issues and mundane office activities, and the benefits can be similarly diverse. We think that the figure below is a good way of summarising the common ones:
Although this figure shows three types of benefit, it also shows (as you would expect) that the benefits are interrelated and that improvements in one area will tend to feed through to another and that benefits are dependent on each other. For example, reducing costs may be difficult without a general improvement in the effectiveness of people.
Quantifying the benefits
Although there is no doubt that the benefits of KM are real and can be very substantial, quantifying them can be quite hard. For example, what is the cost of a bad decision? Or, what is it worth to turn a good decision into an excellent one?
Nevertheless, a useful way to think of the value of KM, especially for commercial organisations, is to look at the value of the company and then subtract the value of the physical assets (land, equipment, materials etc). The balance is the financial value of the company's intellectual assets, which are the output of its ability to use and manage knowledge.
In most companies, the intangible asset value is many times greater than the tangible assets – thus it makes sense to ensure that they are properly managed.