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Knowledge in organisations

Knowledge is basic in innovation, but how is it present in organizations? How do we manage it? Should it be the driver of change?

What is knowledge?

In a Karl E. Sveiby definition, knowledge is the “capacity to act.” It is a definition that includes the concept of personal “knowing”, but at the same time it is applicable to organizations, since the emphasis is on action:

An ability to act, a knowledge, can only be demonstrated with action, that is, with the capacity to do something.

Tacit and explicit

Knowledge can be tacit or explicit and only a part of total knowledge can be made explicit.

  • Explicit is knowledge that is transmitted verbally, in writing, expressed in words, numbers, formulas or by other means. It can be stored in books, systems, patents, and what we call “know-how”. It can be shared and transmitted between individuals or organizations formally and systematically. It has been calculated that it is 58% of the total knowledge.
  • Tacit is that highly personal knowledge, sometimes not conscious, difficult to formalize and share with others. It is deeply rooted in the acts and experiences of individual people, as well as their values, ideals, or emotions. It is 42% of total knowledge.

Information is knowledge made explicit, in part, because another important part is lost in transmission and another part in the personal interpretation of the recipient.

Data, information, knowledge:

The data constitutes structured or discrete symbols that must be assimilated and interpreted. They are usually ordered figures or values ​​and are usually collected in databases.

Data is transformed into information when it is analysed looking for relationships. The Information would be the assimilation and interpretation of the data in a context, apart from the description of some events. Information is a medium for explicit communication.

Knowledge requires a process of learning and understanding information and experience, which provides the ability to act.

In communication, information would be knowledge made explicit. This does not mean that whoever receives the information receives the same original knowledge, first because most of it is lost in transmission, and second because what comes through the information is reinterpreted according to the receiver and his personal perceptions and experiences.

Therefore, sharing personal knowledge can produce a common framework. We would thus speak of shared knowledge or knowledge of an organization.

Knowledge that is learned from another does not abandon the sender but is added to the knowledge of the receiver. Therefore, from the point of view of the organization, we can say that knowledge has doubled.

Sveiby formulates it as: Shared knowledge is double knowledge.

Nonaka and Takeuchi (1995) have expressed that the value created by an organization is primarily determined by the tacit and explicit transfer of knowledge between individuals and in the conversion of knowledge from one type to another. In this way, a series of activities have been generated in organizations aimed at extending or levelling the knowledge among its members. The greater the effectiveness of these communications and conversions, the greater the effectiveness in creating value.

The concept of “individual competences” arises in the organization from the dynamic properties of knowledge and is a synonym for the “ability to act” of different people.

Knowledge also has other characteristics:

  • Knowledge, as a capacity to act, grows when used.
  • Shared knowledge is double knowledge.
  • People have infinite capacity to create knowledge.
  • Knowledge is not something static but a process. We could call it learning
  • Although it is very common to speak of “Knowledge management, Knowledge is not managed. In any case, the space and the way it is created, communicated, shared, etc. can be managed.
  • Knowledge is basic for innovation, it’s a main raw material.
  • Knowledge is an asset. In companies and organisations it’s part of the intangible assets or intellectual capital.

Knowledge in organizations

Knowledge is part of what we call “intangible assets” of organizations.

In contrast to tangible assets, which are accounted for in the companies “balance sheet” and tend to lose value with use (it “depreciates”), knowledge does not depreciate, on the contrary, it can “grow” when it is used and shared. It only depreciates when is not used.

Individual competences are an example of knowledge that grows the more it is used and, conversely, it is lost and “forgotten” without its use.

Until recently, intangible assets have not been accounted, or few of them,  in the “classic” balance sheets of companies. Currently many companies already publish in their annual reports, economic balances that include concepts such as “intellectual capital” and other intangible assets.

Personal knowledge and individual competences are the original base of the intangible assets of an organization since from them are developed:

  • Internal structure or “shared knowledge” are fixed in documents or systems, but include a less explicit part, which is the tacit knowledge of employees and teams, difficult to fix or transmit. They are usually called structural capital of the organization or company itself and sometimes, can be acquired from externals, because in part it is explicit and, in any case, economically valued. The internal structures include patents, own development models, systems, processes and software programs, among others. They are assets created by employees or people working or collaborating with the organization. Generally, these assets belong to the company, but not in their entirety, since a part can be lost with the employees when leaving or from teams that stops working. Likewise, the organization itself, formal or informal structure, the internal communication and knowledge networks, the “culture” of the company, its “state of mind”, etc., belong to the internal structure.
  • The external structure or relational capital, which includes all the external relations of the organization, such as clients, suppliers, administration, community, other stakeholders, alliances, collaborations, etc. It is usually structured and fixed also in systems, databases, etc., but with an included component, difficult to explain, such as personal relationships. All this usually results in values ​​such as the reputation or image of the company or organization. Some of these external structures can even be converted into legal property such as trademarks and registrations. The value of these assets is uncertain and will always depend on the progress of the company and how this organization manages its services and responds to the needs of different stakeholders, clients, etc. Both relationships and image or reputation can change over time and can be factors of positive or negative value.

Competencies, whether individual or group, require a considerable investment of time to be effective, managerial competences and others, for example, require years to be assimilated from practical work and the transmission and interpretation of a multitude of information and data. On the other hand, it is nothing special. The same or more years are required to be a good painter, surgeon and many professions, also assimilating a multitude of data and information but requiring practical and personal transmission, otherwise tacit knowledge is not transferred..

According to Polanyi, competence implies the ability of “know how”, knowing how to “do something”, along with a certain ability not only to have assumed the “roles”, but also to have a certain capacity for “reflection” about it, in the domain of the tradition to know how to insert it or separate it from the cultural context where this tradition is exercised. In other words, competition would not therefore be a property, but a relationship of the individual with a social role system. A person is competent under a certain tradition and cultural context.

Therefore, there is an intangible capital made up of the three elements listed.

Value of Intangible Assets. The “Invisible” Balance

  1. Individual Competitions
  2. Internal Structure
  3. External structure or relational capital

And this configures an “invisible” balance.

We currently calculate that more than 70% of a company’s value is its intangible assets.

Focus on people

If we consider that it is people who create intellectual capital or intangible assets in the ways that we have seen, first contributing and expanding their individual competences and sharing their work in multifunctional teams, but also creating internal and external or relational structures, it turns out that it’s logical that organizations and companies focus on people.

And the basic element is investing in people. The improvements in the processes, new systems and technologies allow and reinforce the changes, which make it possible to obtain significant qualitative improvements and results. But these will only be effective by preparing people and ensuring the critical integration of people and teams, with new processes and technological tools.

The fundamental changes in processes and systems should be designed and understood by a critical mass of employees who are going to be asked to use them and on whom the company depends to ensure the returns of the investment.

Furthermore, understanding is only the first step. If we want to ensure the correct utilization of all the potentials that investment on people and technologies offers, the objective must be the acceptance and the conviction of having the best and most proven work methods.

A significant education program is required to increase intangible assets, in the form of personal competences first, and creation of internal and external structure through new or improved technological processes and tools through complementary investments.

Which leads us to:

“Knowledge Management” as a basis to implement change projects

Knowledge management as such does not exist. We can manage the environment, the climate in which this knowledge can be created, captured, fixed and applied. If it is also intended to share knowledge, that is, that the members of an organization really share their potentials, their competences and the result of this is a multiplied and applicable knowledge in the organization, a whole program of change is necessary.

Changing habits is the key. The change as a positive drive of opportunities will come from allocating sufficient part of investment and time to people education, employees and managers in fundamental changes in work practices, process orientation and, in general, to integrated management that harmonizes basic short and medium term processes with future-oriented innovation

Both managers and employees will only change their habits if we have the resources and time necessary to invest in people, in their education and training.

  • First, to open eyes to the best practice’s methodology in companies, organizations and countries. So, they can discover together and get excited about new potentials. This is the critical value of conceptual education.
  • Second, ensuring broad participation in the redesign of processes by multi-functional teams. This participation is critical in all projects, but even more in innovation, which as a strategic process, can provide us with possibilities for the future. This means forming learning communities, and using tools for knowledge transmission, sharing, fixing, and applying it.
  • Third, to allow all people to see the total panorama, the evolution of the environment and how the organization intends to operate in a new phase, how it can evolve, and the importance that each person and each team has in this process. It is a shared vision of the future.

To truly make effective a change program with these premises, the organization should commit to successfully passing each of the following phases:

  • Enthusiasm. With the possibilities of an innovative vision of the future.
  • Inspire. Have the ability to create and implement changes with the conviction of the possibilities.
  • Motivate. In the difficult moments that all change implies. To place each one in another phase and reach objectives of another level.
  • Perform. Quickly generate and show the first benefits of people’s efforts, to celebrate and feel proud of their achievements.
  • Sustain. A long-term approach to maintain the achievements, results and advantages obtained

Still today, too few organizations invest enough in people, but the lack of this premise inevitably hinders the success of any change program and therefore of innovation.

Author

Francesc Guell is the owner of this site. He was CEO and director of international companies in specialty chemicals and pharmaceuticals. The last 12 years was associated with international consulting groups, providing advice and support to businesses on topics such as innovation and agile innovation processes, operational excellence, knowledge management, change management, strategy and integrated business management. Currently creates and presents courses and workshops on these topics. He graduated as a chemical engineer, postgraduate from ESADE Business School in Business Administration and Master in Knowledge Management. He participated in numerous programs, seminars and ESADE, IESE, EADA, APD and MCE (Management Centre Europe). He is author of articles, presentations and courses on innovation in strategic management, integrated business models, knowledge management, performance measurement, change management and excellence in business processes. See more in: Professional Profile

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