What is Knowledge Management?

Knowledge management (KM) may simply be defined as doing what is needed to get the most out of knowledge resources. Although KM can be applied to individuals, it has recently attracted the attention of organizations. KM is viewed as an increasingly important discipline that promotes the creation, sharing, and leveraging of the corporation’s knowledge. Peter Drucker (1994), whom many consider the father of KM, best defines the need for it:

“Knowledge has become the key resource, for a nation’s military strength as well as for its economic strength . . . is fundamentally different from the traditional key resources of the economist—land, labor, and even capital . . . we need systematic work on the quality of knowledge and the productivity of knowledge . . . the performance capacity, if not the survival, of any organization in the knowledge society will come increasingly to depend on those two factors.”

Thus, it can be argued that the most vital resource of today’s enterprise is the collective knowledge residing in the minds of an organization’s employees, customers, and vendors. Learning how to manage organizational knowledge has many benefits, some of which are readily apparent, others not. These benefits may include leveraging core business competencies, accelerating innovation and time-to-market, improving cycle times and decision-making, strengthening organizational commitment, and building sustainable competitive advantage (Davenport and Prusak, 1998). In short, they make the organization better suited to compete successfully in a much more demanding environment. Organizations are increasingly valued for their intellectual capital. An example of this fact is the widening gap between corporate balance sheets and investors’ estimation of corporate worth. It is said that knowledge-intensive companies around the world are valued at three to eight times their financial capital. Consider for example Microsoft Corporation, the highest-valued company in the world, with a market capitalization that was estimated at around $282 billion as of April 2007. Clearly, this figure represents more than Microsoft’s net worth in buildings, computers, and other physical assets. Microsoft’s valuation also represents an estimation of its intellectual assets. This includes structural capital in the form of copyrights, customer databases, and business-process software. Added to that is human capital in the form of the knowledge that resides in the minds of all of Microsoft’s software developers, researchers, academic collaborators, and business managers.

In general, KM focuses on organizing and making available important knowledge, wherever and whenever it is needed. The traditional emphasis in KM has been on knowledge that is recognized and already articulated in some form. This includes knowledge about processes, procedures, intellectual property, documented best practices, forecasts, lessons learned, and solutions to recurring problems. Increasingly, KM has also focused on managing important knowledge that may reside solely in the minds of organizations’ experts.

Consider, for example, the knowledge of the Shuttle Processing Director at NASAKennedy Space Center (KSC). By 1999, the Shuttle Processing Director at NASA had been supervising shuttle launches for twenty years and had supervised each of the shuttle launches until its lift-off (Becerra-Fernandez and Sabherwal 2005). During the countdown, he was responsible for making the final call if an anomaly justified calling off the mission. As Shuttle Processing Director, he depended on his experience in order to weigh the severity of the problem and decide on the spot if indeed it required stopping the mission. A decision to stop the launch could cost the organization millions of dollars, but on the other hand it could save lives—a priceless alternative. With retirement looming, how can an organization like NASA KSC elicit and catalog this person’s knowledge so that new generations may benefit?

KM is also related to the concept of intellectual capital, which is considered by many as the most valuable enterprise resource. An organization’s intellectual capital refers to the sum of all its knowledge resources, which exist in aspects within or outside the organization (Nahapiet and Ghoshal 1998). There are three types of intellectual capital: human capital, or the knowledge, skills, and capabilities possessed by individual employees; organizational capital, or the institutionalized knowledge and codified experience residing in databases, manuals, culture, systems, structures, and processes; and social capital, or the knowledge embedded in relationships and interactions among individuals (Subramaniam and Youndt 2005).