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Knowledge
Knowledge value chain value chain
Ching Chyi Lee and Jie Yang
The Chi ese U iuersity of Ho g Ko g, Ho g Ko g
Keywouds K owledge ma ageme t, Tacit k owledge, Hxplicit k ✓83
owledge, K owledge-based ualue systems, Competitiue adua tage
Æbstuact I troduces the k owledge ualue chai model as a k owledge ma ageme t (KW)
framework. The model co sists of k owledge i frastructure (k owledge worker recruitme
t,
k owledge storage capacity, customer/supplier relatio ship a d CKO a d ma ageme t), the
process of KW (k owledge acquisitio , k owledge i ouatio , k owledge protectio , k
owledge i tegratio , a d k owledge dissemi atio ), a d the i teractio amo g those compo
e ts resulti g i k owledge performa ce. Further to the discussio of k owledge ualue chai
(KVC), the followi g uiewpoi t was proposed: KW guides the way a corporatio performs i
diuidual k owledge actiuities a d orga ixes its e tire KVC. It was suggested that competitiue adua
tage grows out of the way corporatio s orga ixe a d perform discrete actiuities i k owledge
ualue chai which should be measured by the core compete ce of corporatio . This article also
prouides a cross-refere ce for e-commerce researchers a d practitio ers.

Knowledge and knowledge management

K owledge us i formatio
Knowledge refers to an observer's distinction of ‘‘objects'' through which
he brings forth from the background of experience a coherent and self-
consistent set of coordinated actions (Zeleny, 1987). Through the process of
distinction, individual pieces of data and information become connected with
one another in a network of relations. Knowledge then is contained in
the overall organizational pattern of the network and not in any of the
components.
Knowledge is more than information. Information is data organized into
meaningful patterns. Information is transformed into knowledge when a Journal of Wanagement Development,
Vol. 19 No. 9, 2000, pp. 783-
person reads, understands, interprets, and applies the information to a specific 793.
Ⓒ WCB University Press, 0262-1711
work function. Knowledge becomes visible when experienced persons put into
practice lessons learned over time.
One person's knowledge can be another person's information. If a person
cannot understand and apply the information to anything, it remains just
information. However, another individual can take that same information,
understand it and interpret it in the context of previous experience, and apply
the newly acquired knowledge to make business decisions or redefine a
laboratory procedure. Yet a third person may take the same pieces of
information, and through his unique personal experiences or lessons learned,
apply knowledge in ways that the second person may never have even
considered. Information is a component part but not the whole of
knowledge (Wachlup, 1982). Knowledge itself is a much more all-
encompassing term that incorporates the concept of beliefs based on
information (Dretske, 1981). It also depends on the commitment and
understanding of the individual holding these beliefs, which are affected by
people's interaction and the development of judgement, behavior and
attitude (Berger and Luckmann, 1967).
Journal of Tacit us explicit
Wanagement Tacit knowledge is that knowledge which cannot be explicated fully even by an
Development expert and can be transferred from one person to another only through a long
19,9 process of apprenticeship (Polany, 1962). Polany's famous dictum, ‘‘We know
more than we can tell'', points to the phenomenon in which much that
✓84 constitutes human skill remains unarticulated and known only to the
person who has that skill. Tacit knowledge is the skills and ‘‘know-how'' we
have inside each of us that cannot be easily shared (Lim, 1999).
In fact, both of the definitions have the same meaning. In contrast,
explicit knowledge is relatively easily to articulate and communicate and, thus,
transfer between individuals and organizations. Explicit knowledge resides
in formulae, textbooks, or technical documents. Analogous to the tacit and
explicit dichotomy, Zuboff (1989) makes a distinction between embodied or
action-centered, skills and intellective skills. Action-centered skills are
developed through actual performance (learning by doing). In contrast,
intellective skills combine abstraction, explicit reference, and procedural
reasoning, which makes them easily representable as symbols and, therefore,
easily transferable.
The conceptual distinction between tacit and explicit knowledge also
appears in Reed et al.'s (1996) discussion of causally ambiguous competencies.
They describe tactics as residing in the inability of even a skilled individual to
spell out explicitly the decision rules and protocols that form the basis of
performance. Badaracco (1991) conceives of tacit knowledge as existing in
individuals or groups of individuals. He refers to such knowledge in
individuals and social groups as embedded knowledge.
Similar distinctions between explicit and largely tacit knowledge in
organizations have been made by Scribner (1986), Nonaka (1988), Hedlund
(1994), and Bohn (1994). Explicit knowledge is the knowledge that can be easily
captured artificially through manuals and standard operations, and then
shared with others either through thought courses or through books for
self- reading. In an organization, tangible knowledge takes the form of job
procedures as well as the company's philosophy and strategy.

K owledge ma ageme t
Information is becoming ever more important in our economy, and most
corporations see that knowledge can confer competitive advantage. But
corporations are already flooded with information, and most of us have more of
it than we can handle. Knowledge management (KW) tries to resolve the
troublesome paradox (Anthes, 1998).
A common definition of KW is: ‘‘The collection of processes that govern the
creation, dissemination and leveraging of knowledge to fulfil organizational
objectives''. KW is an emerging set of organizational design and
operational principles, processes, organizational structures, applications and
technologies that helps knowledge workers dramatically leverage their
creativity and ability to deliver business value. In fact, KW is about people
and the processes they
use to share information and build knowledge (Hanley, 1999). Warshall (1997) Knowledge
considered that KW refers to the harnessing of ‘‘intellectual capital'' within
value chain
an organization. KW theory discusses accessing and using all information
within an institution, enabling individuals to apply pertinent information to what
they already know, in order to create knowledge. The theory recognizes
that knowledge, not simply information, is the greatest asset to an
institution. It includes the strategies and processes for identifying, capturing, ✓85
sharing, and leveraging the knowledge required to survive and compete
successfully into the twenty-first century (Cautschi, 1999). KW focuses on
‘‘doing the right thing'' instead of ‘‘doing things right''. In our thinking, KW
is a framework within which the organization views all its processes as
knowledge processes.

Knowledge value chain model

Differences among competitor value chains are a key source of competitive
advantage. In competitive terms, value is the amount customers are willing to
pay for what a corporation provides them. Value is measured by total revenue,
a reflection of the price a corporation's product commands and the units it can
sell. A firm is profitable if the value it commands exceeds the costs involved in
creating the product (Porter, 198†). Creating value for customers that exceeds
the cost of doing so is the goal of any competitive strategy. Value, instead
of cost, must be used in analyzing competitive position since corporations
often deliberately raise their cost in order to command a premium price
via differentiation. Employing Porter's value chain analysis approach, we
developed a knowledge value chain model.
Knowledge value chain consists of KW infrastructure and the KW process's
activities and knowledge performance. These infrastructure components and
activities are the building blocks by which a corporation creates a product
or provides service valuable to its customers. Knowledge performance can be
measured in two categories (van Buren, 1999). One is financial performance.
However, financial assessments such as ROI are particularly difficult to make
for KW activities. The other is non-financial measures including operating
performance outcomes and direct measures of learning. Examples of
operating performance measures include lead times, customer satisfaction, and
employee productivity. Learning measures include such items as the
number of participants in communities of practice, employees trained, and
customers affected by the use of knowledge.
All the non-financial measures can be regarded as the reflection of core
competence of corporation. The KW process's activities are listed along the
bottom of Figure 1.
In any corporation, the KW process can be divided into the five
categories shown in Figure 1. KW infrastructure supports the KW process
activities. The dotted lines reflect the fact that customer/supplier
relationship, knowledge storage capacity, and knowledge worker
recruitment can be associated with
Journal of
Wanagement
Development
19,9
✓86

Figure l.
Knowledge value chain
model

specific KW process activities as well as support the entire chain. CKO

and management are not associated with particular KW process activities
but support the entire chain.

Componentx o1 KM in1raxtructure
K owledge worker recruitme t
The term knowledge worker refers to the worker who possesses
competencies, knowledge, and skills in the organization such as computer
engineers, accountants, etc. If a person leaves the organization, their
knowledge goes with them. Knowledge is acquirable and renewable. It is
the source of innovation and creativity. This is the traditional focus of many
training and education programs. In the knowledge economy, knowledge
permeates through everything important – people, products organizations.
There have always been people who worked with their minds rather
than their hands. In knowledge era, these are the majority of the workforce.
Already, almost 60 per cent of American workers are knowledge workers.
Recruiting knowledge workers in organizations is a key activity in the long
term.

K owledge storage capacity

Knowledge storage capacity is organizational memory and capabilities for
people to store and reuse information and knowledge. It involves the
organization's routine operations and structures that support employees'
quests for optimum intellectual performance and, therefore, overall business
performance. An individual can have a high level of knowledge, but if the
organization has poor systems and procedures by which to track his or her
actions, the overall knowledge resource will not reach its fullest potential.
Knowledge storage capacity is owned by the organization. It is retained by the
organization when employees leave.
There exist two organizational structures, formal and informal. In formal
organizations, people easily access explicit knowledge. Informal organizations
are rich in tacit knowledge, which usually is the source of innovation. It is Knowledge
difficult to articulate in writing and is acquired through personal experience. It
is shared by intensive face-to-face communication. To keep the costs of
value chain
knowledge transfer low, managers try to turn inherently tacit knowledge
into explicit knowledge. There are different approaches to implement KW,
it depends on what kind of knowledge your people rely on to solve
problem. When employees rely on explicit knowledge to do their work, the ✓8✓
people-to- documents approach makes the most sense. When people use
tacit knowledge most often to solve problems, the person-to-person approach
works best.

Customer/supplier relatio ship

Customer/supplier relationship refers to the organization's relationships with
its customers/suppliers. It might include customer/supplier loyalty for services
or products, the purchasing/sale patterns of different customer/supplier
groups, customer/supplier service reputation, warranties and undertakings by
customer/supplier, and database for customer/supplier.
The relationship between a corporation and its suppliers is very
important and can be regarded as a intangible and agile asset of the
corporation. It enables corporation to meet the needs of customers at a lower
cost. Owning more stable and closer relationship with suppliers than its
competitors means that the corporation has gained a superior competitive
position over its competitors. In other words, the supplier relationship is
mainly for cost control purposes.
Understanding better than anyone else what customers want in a product or
a service is what makes someone a business leader as opposed to a follower.
Turning knowledge into new customized products and services will maximize
a corporation's market value.

CKO a d ma ageme t
As a corporation undertakes a KW program, the position of chief
knowledge officer (CKO) is emerging to coordinate the KW infrastructure
components and KW activities. The CKO is entrusted with the role of
transforming intellectual property into a business value. In other words, The
CKO is responsible for the overall knowledge assets of a company and for
defining the area in which the knowledge capabilities of the organization
should evolve, based on its ongoing mission and vision. The CKO has the
ultimate corporation-wide responsibility for the controlled vocabulary and
knowledge directory and tackles the difficult issues associated with cross-
department or cross-corporation processes that have unique knowledge-
sharing requirements.
The CKO also is responsible for ensuring that an appropriate
technology infrastructure is in place for effective KW. The CKO has two
principle design competencies: He is a technologist or environmentalist.
Breadth of career experience, familiarity with his organization, and infectious
enthusiasm for his mission are characteristic of the CKO.
Journal of In this research, both the CKO and management can be considered as
Wanagement support not only for the other three infrastructure components, but also for the
Development entire process of KW.
19,9
Procexx o1 knowledge management
✓88 As noted in Figure 1, the process of KW consists of five activities – knowledge
acquisition, integration, innovation, protection, and dissemination.

K owledge acquisitio
In order to do something we need to track down and analyze all the
information and explicit knowledge that is available. This will lead to beginning
the process of knowledge acquisition via knowledge management
infrastructure.
We will discuss two processes through which organizations acquire
information or knowledge: searching and organizational learning.
Organizational information acquisition through searching can be viewed as
occurring in three forms (Huber, 1991):
(1) scanning;
(2) focused search; and
(3) performance monitoring.
Scanning refers to the relatively wide-ranging sensing of the organization's
external environment. Focused searching occurs when organizational
members or units actively search in a narrow segment of the organization's
internal or external environment, often in response to actual or suspected
problems or opportunities. Performance monitoring is used to mean both
focused and wide- ranging sensing of the organization's effectiveness in
fulfilling its own pre- established goals or the requirements of stakeholders.
Noticing is the unintended acquisition of information about the
organization's external environment, internal conditions, or performance.
Organizational learning plays a vital role in knowledge acquisition. The
need for organizations to change continuously, which was emphasized by
Drucker, has long been the central concern of organizational learning theorists.
Just as with individuals, organizations must always confront novel aspects of
their circumstances (Cohen, 1991).
It is widely agreed that learning consists of two kinds of activity. The first
kind of learning is obtaining know-how in order to solve specific problems
based upon existing premises. The second kind of learning is establishing new
premises (paradigms, schemata, mental models, or perspectives) to override the
existing ones.
These two kinds of learning have been referred to as ‘‘Learning I'' and
‘‘Learning II'' (Bateson, 1972) or ‘‘single-loop learning'' and ‘‘double-loop
learning'' (Argyris and Schon, 1978). From our viewpoint, knowledge
acquisition and knowledge innovation certainly involve interaction between
these two kinds of learning, which forms a kind of dynamic spiral. Senge
(1990)
recognized that many organizations suffer from ‘‘learning disabilities''. To cure Knowledge
the diseases and enhance the organization's capacity to learn, he proposed
value chain
the ‘‘learning organization'' as a practical model. He argued that the
learning organization has the capacity for both generative learning (i.e.
active) and adaptive learning (i.e. passive) as the sustainable sources of
competitive advantage.
✓89
K owledge i ouatio
In a strict sense, knowledge is created only by individuals. An organization
cannot create knowledge without individuals. The organization supports
creative individuals or provides contexts for them to create knowledge.
Organizational knowledge innovation, therefore, should be understood as a
process that ‘‘organizationally'' amplifies the knowledge created by individuals
and crystallizes it as a part of the knowledge network of the organization.
There are actually three levels of knowledge-creating entities including
individual, group, and organization. On the other hand, the conversion of tacit
knowledge to explicit knowledge is a key process in creating new knowledge.
A knowledge-innovation spiral emerges when the interaction between tacit and
explicit knowledge is elevated dynamically from a lower level knowledge-
creating entity to higher levels.
The assumption that knowledge is created through the interaction between
tacit and explicit knowledge leads to four different modes of knowledge
conversion. The four modes actually are four realizations:
(1) from tacit knowledge to tacit knowledge, which is called socialization;
(2) from tacit knowledge to explicit knowledge, or externalization;
(3) from explicit knowledge to explicit knowledge, or combination; and
(4) from explicit knowledge to tacit knowledge, or internalization.

K owledge protectio
Protection of knowledge is important because it protects creativity and the
interests of knowledge-owners. In legal systems protection of knowledge
means protection of Intellectual Property Rights (IPR) such as copyrights and
patents, which includes provision for a right of legal action against
infringers of IPR and provisions detailing persons or corporations
empowered to authorize the commercial use of IPR and allowing the owner of
IPR to charge fees for such commercial uses. In a sophisticated information
technology (IT) system, knowledge will be protected by filename, by
username, by password, etc., so that knowledge can be reused when it
receives a request and checks against the standard file-sharing users and
group table to determine what rights the user has.
In addition to legal and IT protection, corporations should contract with
employees regarding confidential information and their tenure in case of they
Journal of leave, and should also develop other protocols and policy guidelines which
Wanagement recognize and promote rights of knowledge, and then implement them by staff
Development awareness and education campaigns.
19,9
K owledge i tegratio
✓9O Latest advances of information technology can facilitate the processes such as
acquiring and disseminating knowledge; however, the final burden is on people
deciding how to translate this raw knowledge into actionable knowledge by
means of an acute understanding of their business context. This is a
internal knowledge integration process. Corporations have always had some
process to synthesize their experience and integrate it with knowledge
acquired from outside sources (e.g. inventions, purchased patents). A
corporation acquires knowledge from years of experience in such things as
manufacturing, sales, and service. This cumulative experience from different
departments, together with information gathered from outside sources, can be
integrated into the KVC of the organization, which is a inter-sub-KVC
integration process, eventually being the base of KW infrastructure.

K owledge dissemi atio

The most effective way to disseminate knowledge and best practice is through
systematic transfer. That is, to create a knowledge-sharing environment.
It is no coincidence that IT has blossomed at the same time that knowledge
is becoming recognized as the most valuable of a corporation's assets. Explicit
knowledge can be shared through an IT system. However, tacit knowledge is
best shared through people. The more ‘‘valuable'' the knowledge, the less
sophisticated the technology that supports it. Dissemination of tacit knowledge
is a social process. People must contribute knowledge to become part of a
knowledge network. IT alone will not remove significant KW barriers. IT will
not change people's behaviors, increase management's commitment, nor create
a shared understanding of its strategy or its implementation.
To show its commitment for sharing knowledge, an organization should
foster the employee's willingness to share and contribute to the knowledge
base. This may be the most difficult obstacle to overcome. Current
performance and rewards systems exemplify an individual's personal
achievement and rarely take into account an individual's contribution to or
participation in formal collaboration efforts. Reward structures and
performance metrics need to be created which benefit those individuals who
contribute to and use a shared knowledge base. Those who excel at
knowledge sharing should be recognized in public forums such as
newsletters and e-mails. By effective communication, the knowledge
disseminated flows to the acquirers who are searching for and learning
knowledge or information they need. Employees must be made to
understand that the success and advancement in their career will be based
on KW principles. KW skills must be seen to be as important to career
advancement as continuing education and communication skills.
KVC, buxinexx value chain, and competitive xtrategy Knowledge
As the value chain itself implies, each element of activity can create value and value chain
then all the value flows to the endpoint of the business value chain and
joins together, forming the overall value of business, which is usually
expressed as a margin (see Figure 2).
Probing deeply, we can find that the added value comes from the ✓9l
competence of element activity itself, which in turn comes from specific
sub- KVC of itself. For example, sub-KVC in inbound logistics (IL) activity
enables business to gain the inbound logistics competence, and then the
added value follows. The same process occurs in other activities including
operations (OP), outbound logistics (OL), marketing and sales (WS), and
service (SE). Finally, all

Figure 2.
Relationship between
business value chain
and KVC
Journal of the sub-KVCs are integrated together into the whole KVC. In the process
Wanagement of knowledge integration, the competence of knowledge infrastructure is
Development gradually forming. In the end, corporation competence follows KVC.
19,9 By analyzing the above, we might note that competence is after all the
measurement of each sub-KVC. That is the reason why we feel that the core
✓92 competence of the corporation should be employed as the key non-financial
measure of knowledge performance.
In the whole process of KW, the innovation activity fits the product
differentiation strategy, which can enable corporation gains the competitive
advantage, as mentioned before (see Figure 3), while reusing knowledge fits
low cost strategy, by which competitive advantage gained again. In consulting
corporations, it's just like building with bricks: consultants reuse existing
bricks while applying their skills to construct something new. The reuse of
knowledge saves work, reduces communication costs, and allows a company
to take on more projects. A case study of KW by Hansen et al. (1999) noted that,
as a consequence, corporations such as Andersen Consulting and Ernst &
Young have been able to grow at rates of 20 per cent or more in recent years.
Ernst & Young's worldwide consulting revenues, for example, increased
from $1.† billion in 199† to $2.7 billion in 1997. Cenerally, managing
knowledge assets should, like patents, trademarks and licenses, even add
knowledge to the balance sheet.

Concluxion and 1urther dixcuxxion

Knowledge is information plus causal links that help to make sense of this
information. KW is a process that transforms information into knowledge.
KW guides the way a corporation performs individual knowledge activities
and organizes its entire knowledge value chain. It is suggested that
competitive advantage grows out of the way corporations organize and
perform discrete activities in the knowledge value chain, which should be
measured by the core competence of the corporation.
In the end, we would raise another assumption for further discussion, so
that for KW to ‘‘open the black box'' of a corporation and examine its
intricate details. We assumed that the corporation should be treated more or
less as a box of tricks producing the predictable outputs of knowledge-based
products and services from specific inputs of information or/and knowledge.

Figure 3.
The process of KW and
competitive strategy
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