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The Three Stages of Intellectual Capital Management


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The Individual/Organizational Knowledge Interface - One for All and All for One

The definition of knowledge as the understanding gained from experience, and applied to new sit­uations, ties knowledge closely to the individual. This implies that the term organizational knowledge is a mere metaphor to denote the aggregate knowledge of an organization's employ­ees. After all, an organization cannot have a brain or a memory to have knowledge. But if an orga­nization's knowledge is merely the aggregate knowledge and brainpower of its employees, then how do we classify organizational behavioral patterns reflected in databases, records, and hun­dreds of practices and operations? What about the wisdom gleaned from the organization's past experiences and transactions, and the insight gained from contact (relationships and networks) with customers, suppliers, and possibly competitors? Though all these resources have been cre­ated and are still maintained by individual employees, a considerable part of them remains with the organization after employees leave at the end of the day.

There is no doubt that the knowledge of a newly established organization with few members is that of its employees. But as organizations grow in size and life span, organizational knowledge takes other forms as well. As the organization grows, its knowledge base surpasses the knowl­edge of its individual members, to include past experiences and behavioral routines that develop as a result of the application of knowledge to an insurmountable number of settings. These behav­ioral patterns and routines have stored in them past experiences, and hence knowledge or wis­dom, that affect the organization's modus operandi and the way it responds to the changing environment.

In addition to these routines and practices, an organization has a wealth of information resources that it collected and codified through the years. This represents the informational plat­form, which the employees process to produce more knowledge, and hence is part of the orga­nizational knowledge base. The value of information databases lies in their potential to facilitate the generation of new knowledge by employees and thus should be based on their learning needs and the competencies that the organization plans to develop. That is why knowledge man­agers refer it to as the knowledge base, since it provides the basic knowledge resources that an employee needs to advance on the learning curve. The interaction between the individual knowledge and the various forms of organizational knowledge, and the conversion from one form to the other, is what creates value in an organization.

But, like the information/knowledge interface, it is hard to determine with any precision when individual knowledge ends and organizational knowledge begins. This is because of the complex nature of knowledge, human and organizational behavior. To clarify the matter, KM practitioners

        Tacit                       Explicit


Tacit to Tacit Socialization

Explicit to Tacit Internalization

Tacit to Explicit Externalization

Explicit to Explicit

EXHIBIT 5.1    Tacit/Explicit Knowledge Conversions

created the concept of tacit/explicit knowledge, which incorporates both dichotomies (informa­tion/knowledge and individual/organizational knowledge) in a manner that enables an organiza­tion to understand the knowledge and value creation process.

Under the tacit/explicit distinction, explicit knowledge includes all that can be codified or expressed in documents, manuals, and databases. Tacit knowledge, on the other hand, encom­passes all that cannot be clearly articulated but is the real source of knowledge and the basis of decision making. In addition to experience, skills, and competence, tacit knowledge includes intuition and things that the employee "just knows." The most efficient and effective way to pass this knowledge is through personal contact. To enable effective decision making, KM practition­ers search for ways by which an organization can locate, externalize, and capture the tacit knowl­edge of its employees. Once captured, the tacit knowledge is converted into explicit knowledge, by being codified, and later shared. But there are other individual/organizational or tacit/explicit knowledge conversions that take place as well.

Nonaka and Takeuchi14 explain that there are four modes of knowledge conversions based on the tacit/explicit concept, as illustrated in Exhibit 5.1. First, knowledge can be converted from tacit to tacit through mentoring and apprenticeship and other forms of personal contact (i.e. socialization). Second, knowledge can be converted from tacit to explicit when the individual articulates the basis of her or his decision and thus conveys knowledge (i.e., externalization). Then there is the internalization of knowledge wherein explicit is transferred to tacit knowledge when the employee learns from the organization's codified knowledge (reports, manuals, etc). Finally, explicit is transferred to other explicit knowledge where documents or information are shared and added to the organizational information database.

These four modes of knowledge conversions on the individual/organizational interface and the information/knowledge conversion in the human brain are what KM tries to boost to maximize value creation. Misunderstanding of these knowledge relations and conversions lies at the heart of so many failed KM initiatives. It is important to note that KM is not only about implementing a number of solutions to minimize organizational memory loss, prevent the brain drain, and sup­plement IT tools, though many organizations use it just for this purpose. Using it restrictively limits the potential of KM in advancing the whole organization on its journey to become a learn­ing organization. British Petroleum proved that by implementing a robust KM program whereby the whole organization was transformed to a "big brain," boosting its overall performance exten­sively, and pulling it from the brink of bankruptcy.15


The ability of an organization to learn, accumulate knowledge from its experiences, and reap­ply this knowledge is itself a skill or a competence that, beyond the core competencies directly related to delivering its product or service, may provide strategic advantage.

- Michael Zack, Northeastern University Professor15

The competence to generate knowledge resources, being deeply embedded in the organization's practices, routines, and brainpower of its people, can hardly be imitated by competition, and hence can be the source of sustainable competitive performance. Consequently, the ability to manage knowledge effectively becomes a critical organizational competence for achieving the organizational mission. It is the ability to recognize the availability of knowledge resources within the whole organization, develop them through transfer, and deploy and redeploy them to meet strategic objectives.

To develop KM as a core competence, a number of changes are needed at both the strategic and operational levels. On the strategic level, a shift in the organizational vision is necessary if the organization is to get on the road to becoming a knowledge/learning organization. For lead­ership to steer the organization in that direction, the organization should envision itself as a knowledge machine or a big brain. To manage knowledge effectively, however, leadership's com­mitment alone is not sufficient. Two things are needed at the strategic level to implement KM - (1) applying a gap analysis, also known as a knowledge audit, to the organizational knowledge resources to ascertain what the organization knows and needs to know; and (2) adopting the knowledge strategies that will enable the organization to meet its goals or mission, taking into account the strengths and weaknesses of its knowledge resources.

On the operational level, many changes need to be implemented that affect the structure of the organization, including the IT infrastructure, its culture, the use of practices and tools, and the job design. These changes will be discussed next.

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