SDA Professor of Strategic and Entrepreneurial Management
One of the main reasons why multinational firms exist is because they gain competitive advantage over purely local rivals by sharing knowledge across borders. But after more than two decades of articles and projects around the topic of management of knowledge (KM), KM as a managerial tool in multinational corporations (MNCs) is still showing a varying degree of impact, depending on the internal organizational culture, the incentives provided for collective participation or the ability of companies to effectively exploit the knowledge they produce on a global scale.
Unfortunately, many knowledge management systems are ill-headed and suffer from flawed design. Some companies have invested heavily in information and communication technology (ICT) to support knowledge management initiatives, but people involved in business operations have made little use of this technology. Other companies were betting on grassroots initiatives in the belief that knowledge management only works when people involved in business operations engage in communities of practice that work largely untouched by managerial intervention, only to be later disappointed that the initiative had little to do with the strategic concerns of the company.
Enterprise Social Networks, which were supposed to disrupt traditional KM practices by fostering collective participation in knowledge production and in information sharing, organizational integration and strategic innovation processes, are still not being widely adopted. While we have witnessed several successful cases in this field, the implementation of knowledge networks requires a balanced combination of business purposes, social incentives and personal benefits for users/employees, which is not always easily achieved.
Here are a few suggestions on how to run KM projects, divided into two core phases (Building and Executing a Knowledge Management Strategy). They may seem common sense, but believe me, they are still not common practice in too many corporations.
Three steps to build a Knowledge Management Strategy
Step 1: Outline the impact of knowledge on corporate success
Before investing into costly knowledge management systems and activities, one needs to get a sound understanding of the general business logic and profit drivers of the single segments. How does knowledge influence the creation of positional advantages within a given industry? How does knowledge influence the creation of cost and differentiation advantages? Key knowledge areas need to be identified that have a substantial impact on the performance of the firm.
Let’s take the example of a cement company: in most markets, cement is hard to differentiate and cost efficiency is therefore paramount. So, what are the main cost drivers of cement production? Energy cost surely have a substantial impact on the final costs of cement. Alternative fuels like solvents, tyres or ‘mad cows’ during the BSE epidemic come at negative costs: cement plants are paid to burn them. To develop and share knowledge on how to use alternative fuels to save energy costs without polluting the environment is therefore a central knowledge area.
Step 2: Identify existing knowledge
Knowledge identification, aims at locating existing knowledge within the identified key knowledge areas, understanding the shape of that knowledge (i.e., is it codified or embodied in people’s brains?), and mapping where the knowledge is stored. Aids such as knowledge maps, yellow pages systems, best practice libraries or knowledge brokers may help in understanding location and shape of existing key knowledge.
Step 3: Create a strategy for knowledge development
Based on the analysis of existing knowledge, this step links knowledge to market requirements. What knowledge will we need in 5 years to stay competitive? Once a clear knowledge vision has been established, firms can start analysing and modifying the way they develop knowledge: the time they dedicate, how they collaborate with external stakeholders to access knowledge, the incentive system they use to create innovation, the entrepreneurial climate they have, and so on. Generally, firms can support six main knowledge development processes: 1. codification (i.e., from brain to paper); 2. internalization (i.e., from paper into brain); 3. combination (i.e., creatively assembling various pieces of existing papers); 4. socialization (i.e., from brain to brain); 5. hire good people; 6. get access to interesting reports.
Four steps to execute a Knowledge Management Strategy
Step 1: Move knowledge to where it is needed
Exploiting knowledge is especially tricky in multinational firms where tasks in one part of the world need to be connected with capabilities which are often buried in another part of the world. One solution to this challenge is that upcoming tasks are classified and coordinated by a global practice leader or competence centres. A best practice database or yellow pages system might help managers in search of existing solutions. Incentive systems and managerial mechanisms that facilitate the transfer of knowledge from one country to another must be put into place. Even if subsidiary managers are a good corporate citizen, they do not always send out their best people to solve problems elsewhere.
Step 2: Measure your “return on knowledge”
This step entails an analysis of how the value of knowledge is communicated to the stakeholders and the performance of the knowledge management system is evaluated and corrective actions are taken. The sometimes huge difference between book and market value of firms is partly due to the fact that knowledge is not properly represented in the balance sheets of firms. The Swedish financial services firm Skandia was the first to develop a supplement to the annual report to illustrate the value of its intellectual capital to shareholders. To do this, Skandia used a balanced scorecard approach and left the decision to develop measures for knowledge to the decentralized units. Other firms limit their knowledge communication and measurement activities to simple items like the annual goal setting of employees by including “professionally manages knowledge” as an evaluation criterion.
Step 3: Create quick wins
After a sound understanding of where critical knowledge is located, how it is developed, exploited, measured and how the efficiency of the knowledge management processes are appraised, small changes in the knowledge management system with a strong impact can be tackled. These “quick wins” can be found at several places: types and frequency of meetings, the Intranet, international job rotation, reporting system, yellow pages systems such as company “facebook” among others. Just to change the key documents could create substantial benefits for the company without much effort. This phase is essential because it keeps the enthusiasm for knowledge management high and opens up for deeper change programs linked to the culture of the company.
Step 4: Change the knowledge management culture
To achieve deeper and fundamental change in the way a multinational company generates and distributes knowledge, cultural aspects have to be addressed. To change the knowledge management culture is obviously not an easy task and does not follow cookbook-like approaches. The creation of a knowledge management board that nominates practice leaders for core knowledge areas, expert teams in their support and encourages employees to actively participate in communities of practice could be a concrete start for a long journey towards a cross-border knowledge sharing culture.