Know how : Managing knowledge for competitive advantage

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Know how
Managing knowledge for
competitive advantage
An Economist Intelligence Unit white paper
sponsored by Tata Consultancy Services

Know how
Managing knowledge for competitive advantage
Acknowledgements
Know how: Managing knowledge for competitive
advantage is a briefing paper written by the Economist
Intelligence Unit and sponsored by Tata Consultancy
Services (TCS). The findings and views expressed in
this white paper do not necessarily reflect the views of
TCS, which has sponsored this publication in the
interest of promoting informed debate. The Economist
Intelligence Unit bears sole responsibility for the
content of the report.
The main author was Terry Ernest-Jones and the
editor was Gareth Lofthouse. The findings are based on
two main strands of research:
● The Economist Intelligence Unit conducted an
online survey of 122 senior executives in western
Europe, 68 of whom were based in the UK.
Participants were selected from large
organisations with over $1bn in annual sales
revenue, and from a cross-section of industries,
with a particular emphasis on financial services,
healthcare and pharmaceuticals,
telecommunications and professional services
companies.
● We also interviewed several senior executives and
knowledge-management practitioners on the
challenges they face in managing corporate
knowledge, and on the strategies they have
employed to exploit business information for
competitive advantage.
Our sincere thanks go to all the interviewees and
survey respondents for sharing their insights on this
topic.
June 2005
© The Economist Intelligence Unit 2005
1

Know how
Managing knowledge for competitive advantage
Executive summary
How does a company turn the reams of data depth interviews with knowledge-management
it generates daily into actionable
experts. These are some of the key findings:
knowledge? This is a question that
increasingly frustrates executives at a time
Information is everywhere, but knowledge is
when their company’s store of data may be growing
hard to come by. Two-thirds of firms in the survey
by millions of gigabytes per year. Realising the vast
complain that, while their IT systems generate huge
potential of the knowledge they hold—but often
volumes of data, they struggle to turn this into
can’t harness—firms place knowledge management
information they can act on. Too much information,
and business intelligence solutions top of their list of
and the fact that a lot of it isn’t accurate or reliable,
technologies for achieving their strategic goals over
are cited as two major impediments to effective
the next three years, according to a new survey by the
decision-making by firms in our survey. An even bigger
Economist Intelligence Unit sponsored by Tata
problem, according to 55% of executives, is that
Consultancy Services (TCS).
information is not adequately prioritised.
There is no shortage of IT tools designed to
Consolidating information and providing consistent
address the requirement for corporate knowledge.
performance indicators are regarded as the most
But executives in our survey complain that although
important steps firms can take to improve the speed
their systems are brimming with data, accessing the
and quality of decision-making.
information they need to make good decisions can
be hugely difficult. Technology often hinders rather
Knowledge management has become the top
than helps by providing solutions that are either too
priority for strategic IT. Almost two-thirds of
difficult to use or that fail to deliver the information
executives in the survey believe that knowledge
managers need most. Departmental silos that
management and business intelligence tools will be
prevent, for example, information in sales from
the most important technology underpinning their
flowing through to product development also
company’s goals over the next three years. Firms are
emerge in this research as an all too familiar
looking for IT tools that allow employees to prioritise
problem. These issues are forcing firms to look for
information, and to extract valuable insights from an
new knowledge management strategies, supported
ocean of data. For most managers, having information
by smarter IT solutions, as a way of harnessing
that they can quickly interpret and analyse is much
information for competitive advantage.
more important than, for example, having information
This white paper examines how information can be
on the move. There is also growing demand for smarter
managed to achieve better decision-making and
management information systems, with tools like
knowledge-sharing around the organisation. It draws
digital dashboards enabling executives to track their
both on a survey of 122 executives from large
firms’ key performance indicators on an almost real-
corporations around Europe, and on a series of in-
time basis.
2
© The Economist Intelligence Unit 2005

Know how
Managing knowledge for competitive advantage
A checklist for
too complicated: they have to be delivered
ing the same mistakes, or failing to
in a way executives and staff want to use
repeat useful discoveries.
unlocking corporate
them, and to adapt to the areas/depth of
knowledge
knowledge needed by the individual.
8. Who leads KM? Many large organisa-
tions now have a dedicated head of KM,
1. Business needs—and the kinds of
5. Markets, customers, technology and
or at least a high-ranking sponsor, to
knowledge required to fulfil them—have
competition are continually changing;
ensure the right collaborative environ-
to be identified first before tools and
knowledge gets stale fast. Is the KM
ment.
processes are implemented. Many initia-
framework able to handle change?
tives have failed where technology has
9. Bulletin boards and web logs have
dictated knowledge management (KM).
6. Can the organisation track whether
begun to prove their worth to a range of
knowledge is being acted on, and what
organisations: they supply an instant
2. Successful KM is about shifting culture
value is gained from it? Even where
exchange of learning or can be used by
and behaviour—technology is an impor-
knowledge flows quite efficiently round
executives to communicate and keep
tant element, but is subsidiary.
an organisation, companies can often do
their ear to the ground.
more to ensure information is acted on.
3. A basic mechanism in large organisa-
10. You can only get people to volunteer
tions is also one of the most effective:
7. Is there a means to learn from experi-
knowledge—you can’t force it. However,
keeping tabs on who knows what—and
ence—good and bad—and share that
firms that provide forums, tools and
how to get in touch with them.
learning when a similar situation occurs?
opportunities for informal networking
A vast amount of resource is wasted in
can encourage employees actively to
4. Though improving, KM tools are often
corporations just by unwittingly repeat-
share knowledge.
Knowledge will enable companies to compete for
important a part of good knowledge management as
customers. Knowledge about customers, their
having the latest business intelligence technology.
preferences and their behaviour is the overwhelming
Indeed, one reason why knowledge-management
focus for improving the quality of information in large
solutions have disappointed in the past is that firms
organisations over the next three years. CRM is the
have invested in technology without fully
area where most IT innovation will take place, with the
understanding the needs of the end-user. Having a
focus shifting from automation of basic customer
corporate culture that encourages employees to
processes to more sophisticated analysis of customer
volunteer ideas and share important information is
behaviour. Companies like Tesco and Wanadoo have
ultimately more important than any single knowledge-
demonstrated how customer analytics can support
management tool.
initiatives to increase customer loyalty and expand
It is notoriously difficult for firms to capitalise on
markets share, much to the chagrin of their
their collective knowledge, but it is a problem worth
competitors.
solving. One case study in this report shows how
Schlumberger achieved a return on investment of
Technology can help unlock knowledge, but
$200m in a single year from a recent knowledge
corporate culture is more important. Understanding
management initiative. As the survey reveals, a
who knows what, and how people use different types
growing number of firms now believe that there are
of information as part of their work, is just as
tangible rewards to be gained from sharing knowledge.
© The Economist Intelligence Unit 2005
3

Know how
Managing knowledge for competitive advantage
The strategic value of knowledge
Most large firms only capture and act on a Intelligence Unit, sponsored by TCS, shows that global
fraction of the knowledge contained
executives now see knowledge management as the
within their organisation. Sometimes this
most critical technology for achieving their corporate
knowledge is hidden within dozens of
goals over the next three years. Indeed, the ability to
databases, reports and information systems. In other
harness corporate information has become so critical
cases, knowledge is locked inside someone’s head,
that business intelligence technologies are set to
and is lost to the organisation when that person leaves
assume greater strategic importance than CRM,
the business. Knowledge management describes a
enterprise resource planning (ERP) and even that
range of strategies and tools that try to capture this
other new hotspot for IT spending, the mobile
valuable knowledge, to deliver it to other people who
enterprise.
can benefit from it, and to ensure that information can
There are several good reasons why boardrooms are
be acted on swiftly to the firm’s advantage.
now giving knowledge management the attention it
Although most executives would agree that
deserves. As businesses’ operations become more
knowledge management is a good idea in principle, it
globalised, the task of capturing information to
has rarely been treated as a priority. But that is about
support decision-making is becoming more difficult.
to change. A new survey from the Economist
In the survey, 45% see better, sounder decision-
How important are the following technologies to achieving your company’s strategic goals over the next three years?
(% respondents that score each option as important)
Business intelligence/knowledge management solutions
67
New customer relationship management (CRM) applications
63
Supply-chain integration and automation solutions
58
Enterprise resource planning (ERP) applications
51
Security applications
49
Corporate performance management technologies
45
Risk management solutions
42
Mobile/wireless technology
35
Grid or utility computing
18
Embedded systems, eg radio frequency identification (RFID)
16
Source: Economist Intelligence Unit survey, June 2005
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© The Economist Intelligence Unit 2005

Know how
Managing knowledge for competitive advantage
What are the main benefits that your company hopes to obtain
over the next three years through the more efficient generation
and flow of knowledge? Select up to three options.
(% respondents)
making as one of the top three benefits of good
Improved customer relationships/loyalty
knowledge management.
65
Better visibility of internal business processes and performance
An increased focus on corporate governance is
46
another factor, driving firms to seek better
Faster, sounder management decision-making
44
information on the risks they face, and on how
More effective product/service development
41
different parts of the business are performing. Almost
Smoother collaboration across teams and departments
half of firms in the survey will turn to knowledge
31
Greater customisation of products and services
management as a way to improve visibility of internal
23
business processes and performance.
Improved compliance
16
It is not just internal processes that can benefit
Improved corporate governance
from better knowledge management, however. Most
10
Better corporate security
companies believe that relationships with customers
7
are changing, and that to compete they will need to
Improved employee loyalty and retention
6
develop a much deeper knowledge of customer needs
Other
1
and behaviour over the coming years. It is by enabling
Source: Economist Intelligence Unit survey, June 2005
Knowledge
Information filtered through the
structure (a standard computer platform
hierarchy of the organisation at a
for all engineers), a single portal into the
management pays off painfully slow pace and attempts to
technical resource base, technical
for Schlumberger
capture knowledge were typically
helpdesks in all technology centres, a
restricted to filing reports manually.
validated knowledge repository, ‘just-in-
An internal study concluded that better
time’ online distance learning and a
Knowledge management stretches to all
systems for capturing knowledge would
centralised document authoring and
corners of the earth for Schlumberger, a
lead to higher productivity, better
publishing system.
global oil industry services supplier with
decision-making, and improved service
The ROI after the first year of operation
more than 52,000 staff working in 80
quality for the customer. In response,
has been reported at $200m.
countries. For its Oilfield Services division
Schlumberger launched InTouch, an
Schlumberger claims that by speeding up
to stay competitive, Schlumberger knew
initiative designed to streamline
the process of capturing, sharing and
it would have to rely on effective know-
knowledge-sharing and remove “the
refining knowledge assets, InTouch
ledge exchange between its operations
clutter in operations”. The strategy
improves efficiency in the field and helps
groups (who interface with customers)
focused on providing a means to capture
the technology centres to keep current
and the technology centre staff (respon-
the lessons learned during service delivery,
with changing field and customer needs,
sible for technology and support).
a way to store and retrieve local and
enabling them to improve technology and
This wasn’t happening. Feedback from
frequently needed reference information,
innovate. It also enables the field
field operations staff showed that
and to ensure that the firm retains past
engineers to disseminate new ideas, best
business segments spent an excessive
knowledge of operations.
practices and lessons learned, following
amount of time collecting information
The InTouch services encompass the
the dictum “apply everywhere what we
needed to get a service up and running.
Schlumberger global network infra-
learn anywhere”.
© The Economist Intelligence Unit 2005
5

Know how
Managing knowledge for competitive advantage
companies to capture and analyse customer
help organisations get “the right content to the right
information that knowledge-management
place at the right time, in the right form”.
technologies and solutions can deliver the greatest
Why do executives find it so difficult to get the
benefit of all. Thus effective management increasingly
information they need? Certainly internal divisions are
depends on capturing good quality information from
part of the problem: the majority of executives in the
outside the enterprise, as well as from within.
survey believe that valuable information is trapped in
silos in the organisation, and cannot be shared.
Knowledge gaps
Ignorance of what knowledge already exists within the
organisation, or of where to find it, is also a serious
There is no shortage of information in today’s
problem according to the survey.
organisations. Many firms now find themselves awash
Simply providing access to an ocean of information
with data, but struggling to draw much valuable
is not enough, however. Executives need knowledge
insight from it. Two-thirds of the executives in the
delivered in a form they can quickly interpret and act
Economist Intelligence Unit’s survey complain that
on. The failure of firms to find adequate ways to
although their IT systems generate large volumes of
prioritise information is cited as the biggest
data, they are often unable to turn this into
impediment to good decision-making by 55% of
information they can act on.
executives. A significant proportion of respondents
“Technologies generate huge amounts of
also expressed misgivings about whether the
information, but we’re starving for knowledge,” says
information they receive is even accurate or reliable.
Professor Nigel Shadbolt, a knowledge-management
These problems are more pronounced for some
specialist at Southampton University. “We’re now
categories of information than for others. For
generating so much information that people are
example, the survey suggests that firms are relatively
rendered less capable of making timely or effective
effective when it comes to capturing and exploiting
decisions.” Professor Shadbolt currently leads an £8m
financial information. Many firms have tightened their
research project involving five UK universities, aimed at
processes for financial reporting in the wake of
developing knowledge-management strategies that
regulations such as Sarbanes Oxley, and almost three-
quarters of survey participants are confident of their
Do you agree with the following statement: Our IT systems
firms’ capabilities in this respect.
generate large volumes of data, but insufficient actionable
information is generated from the data

Knowledge management is much less effective in
(% respondents)
other important areas, however. Very few firms believe
they are good at exploiting the knowledge of their
employees, or at capturing intelligence on their
Disagree 32
competitors. In fairness these have always been
Agree 68
difficult types of knowledge to capture on a systematic
basis, but even the quality of basic information needed
to run a business gives cause for concern. For example,
less than half of firms in the survey believe they are
effective in capturing and exploiting operational
Source: Economist Intelligence Unit survey, June 2005
performance data, and only 37% believe that they have
6
© The Economist Intelligence Unit 2005

Know how
Managing knowledge for competitive advantage
good information to support sales and revenue
already showing how customer segmentation and
forecasting.
analytics can drive increased value. Tesco, the UK’s
These knowledge blackspots seriously undermine
largest supermarket chain, uses information from its
firms’ ability to measure corporate performance, or to
Clubcard loyalty card to understand purchasing
identify risks and opportunities. Worrying though
behaviour, enabling promotions to be planned and
these issues are, however, there is another area that
targeted to meet customer requirements. The success
proves particularly troubling for executives in the
of this scheme is based on its ability not only to
survey. For when it comes to exploiting corporate
capture information about customer preferences, but
knowledge, it appears that nothing is more important
to analyse this data to support decisions on pricing or
or valuable than information about your customers.
marketing strategy.
Wanadoo, the largest ISP in the UK with more than
Know thy customer
2.5m customers, provides another example. The firm
has applied analytics to help reduce churn, a term
The desire to build deeper customer relationships has
describing the defection of customers to rival telecoms
consistently emerged as a top priority for firms in the
providers. Wanadoo was able to sift through terabytes
Economist Intelligence Unit’s recent executive
of customer data (5m customer records are generated
research. Firms believe that the ability to understand
per day) to report churn, to understand the issues that
their customers’ needs, and to predict changes in their
iritate customers most, and even to identify potential
behaviour, could give them a decisive advantage over
“churners” before they leave. If the customers were
their competitors. And yet this is an area where firms’
found to be on the verge of quitting, and were deemed
knowledge-management capabilities are often
as high-value clients, Wanadoo was able to offer an
weakest. Despite the heavy investments firms have
incentive to stay (for example, a discounted tariff).
made in CRM systems in recent times, only 23% of
Over 18 months, this strategy enabled Wanadoo to
executives in the survey say they are effective in
reduce churn by 7%.
capturing and exploiting information on customer
preferences and behaviour.
Which will be the main areas of focus for improving the quality
of information at your company over the next three years?

Firms are only too aware that this situation must
Select up to two options.
change if they are to compete effectively in an
(% respondents)
increasingly customer-driven business environment.
Customers, their preferences and their behaviour
72
Almost three-quarters of executives in the survey cite
Operational performance data
knowledge of customer preferences and behaviour as
44
Financial information
the area where they will need to make the greatest
30
efforts to improve the quality of corporate information
Inputs to sales/revenue forecasting
16
over the next three years.
Competitive intelligence
14
To be successful in this endeavour, firms need to do
Experiential knowledge of managers and employees
a lot more than merely capture mountains of
11
Employee performance
information about customers. They must learn how to
7
analyse this information to identify what drives
Other
2
customer behaviour. A number of companies are
Source: Economist Intelligence Unit survey, June 2005
© The Economist Intelligence Unit 2005
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Know how
Managing knowledge for competitive advantage
The use of customer analytics not only allows
executives in the survey is that information is not
companies to keep punters satisfied, but also enables
adequately prioritised. “You need to find out what
them to grow customer profitability. Customer
information users really want, and then make it as
profitability analysis enables firms to identify which
easy as possible for them to get it,” comments John
customers are most valuable, and which cost more to
Keeble, director of knowledge management at the
do business with than they contribute. Valuable
insurance broker Aon. In line with this philosophy,
customers can then be targeted with premium services
Aon has provided its general employees with a few
and highly targeted promotions. Before they can put
simple search tools that satisfy common types of
these strategies into effect, however, firms need
information query. For more complex queries,
solutions to some of the problems that have hampered
however, the firm provides a team of specialists with
knowledge management in the past.
the ability to perform more sophisticated searches and
analysis. Currently about 60% of information queries
Tools for insight
in Aon are self-served, with about 40% handed over to
the specialist team.
There is no shortage of technologies for knowledge
How can IT help improve the relevance and value of
management and business intelligence. Tools include
information for managers? Three-quarters of
data warehouses and other knowledge repositories,
executives say that having access to consolidated
online communities, e-learning applications, intranets
company information and a consistent set of
and numerous electronic directories and search
indicators would be the most important step towards
technologies. Most of them can be useful if applied
enhancing the quality and speed of decision-making.
correctly. Ironically, though, many of the IT systems
This trend can be witnessed in the growing popularity
firms bought to create better information flows are
of digital dashboards, which provide a unified desktop
also part of the problem: by generating more data than
display of regularly updated performance metrics. In
users can digest, they make it harder for people to find
fact, digital dashboards emerge as one of the two top
information of real relevance or importance.
technologies that firms will rely on to improve
As with any form of IT, the key to success with
management decision-making over the next three
knowledge-management tools is to define clearly your
years, according to the survey.
information requirements, and only then pick the
technology that will best support these needs. In
What should IT most improve upon over the next three years
to help you make better management decisions?

practice, many knowledge initiatives have gone awry
(% respondents)
because managers have put the cart before the horse.
Make it easier to analyse and drill down into information
As Professor Shadbolt notes, “if there’s a good
40
Improve the quality of data
understanding of the information requirement, you
31
can make more intelligent decisions about the
Ensure access to information anywhere
12
technology you choose.”
Deliver information to managers faster
Another related challenge is to deliver information
11
Get instant alerts on things going wrong
that is relevant to the needs of different types of user
6
around the organisation. As noted above, the biggest
Other
1
obstacle to effective decision-making according to
Source: Economist Intelligence Unit survey, June 2005
8
© The Economist Intelligence Unit 2005

Know how
Managing knowledge for competitive advantage
Democratising
organisation. Richard Sambrook, head of
setting.” Mr Semple carries out workshops
global news and the World Service at the
for senior managers “to get their heads
knowledge
BBC, is a particular fan of web logs
round the democratisation of the
at the BBC
(“blogs”), for example. Wikis—editable
workplace—and warn them of the texting
Web pages designed for groups of users—
generation to come”.
The BBC’s experiments with electronic
are also popular.
This approach to knowledge
tools for knowledge-sharing began with
The advantage of these tools is that
management is clearly popular at the
online bulletin boards. Relatively inex-
people can subscribe to the services that
BBC, but isn’t it open to abuse by
pensive to set up, these now field approx-
interest them most, without being
disgruntled or malicious employees?
imately 6,000 questions a month from
overloaded by information that has no
Semple believes not, arguing that the
BBC staff, ranging from “Where can I find
relevance to their situation. “People don’t
system is largely self-managing, with
a stringer in Poland?” to more searching
take time to read documents in most
regular users moderating when people
questions about the future direction of
organisations these days,” says Euan
“shoot their mouths off”. There have only
the organisation.
Semple, director of knowledge
been a handful of cases where he has had
The success of the bulletin boards has
management solutions at the BBC, who
to intervene. Rather than something to be
led to the adoption of other types of
prefers to be known as “director of social
frightened of, the system can be used by
technology to encourage knowledge
computing”. “They need to be able to
executives to stay in touch with the issues
management to grow organically in the
learn from each other in an informal
that concern employees.
Other IT investments may also need to be
questionnaires and IT systems for knowledge-sharing.
reconsidered in the light of these findings. Delivering
He points out that a lot of important knowledge can’t
information to mobile users has been a key IT issue in
be quantified or captured in words: “People learn how
recent times, and this will continue to be a major goal
to ride a bike—but not from a manual. A huge amount
for many firms. For most managers in the survey,
about bike-riding can’t be codified.” The real secret of
however, having information that they can quickly
successful knowledge management is for an
interpret and analyse is much more important than
organisation to be able to map what it knows.
having access to information on the move. This may
Generally, most information sytems only deal with
explain why knowledge management and business
explicit knowledge, but tacit knowledge—the insights
intelligence solutions assume much greater importance
held in people’s heads—is often more valuable. “We
than mobile/wireless technologies in the survey.
know more than we can tell, and tell more than we can
write down,” argues Mr Snowden.
Organising for knowledge
The biggest obstacle to knowledge management is
Even a well-conceived technology system can only
not inadequate technology in itself, therefore, but
provide a partial solution to knowledge management,
rather internal barriers to sharing information
however. In fact, some experts caution against relying
between people, teams and departments. No amount
on any approach that attempts to turn knowledge-
of sophisticated technology will solve this alone.
sharing into a mechanical process. David Snowden,
Instead, firms must foster a business culture where
director of the Cynfin Centre for Organisational
information-sharing is encouraged.
Complexity (a network of professionals and academics
One firm that has worked hard to create a
dedicated to studying organisational strategies),
knowledge-sharing culture is BP, the UK-based oil
argues that informal discussions around the water
company. Chris Collison was the head of knowledge
cooler are often more useful than formal
management at BP and Centrica, before becoming an
© The Economist Intelligence Unit 2005
9