Systems thinking for Knowledge Management

Consider the above “Strategic Capability” diagram (L. Baird and J. Henderson, The Knowledge Engine, Berrett-Koehler Publishers, 2001, first edition page 14). 

  Business Intelligence (BI) needs to provide the right Knowledge to drive the strategy and use the strategy to direct Knowledge Management (KM) initiatives: 

The Focus stage above. 

The BI Reflect stage must rely heavily on Knowledge generated at the operational level (this same Knowledge is considered as “only” Information at the Strategic Level). Reflecting is about aggregating and simplifying this “operational Knowledge”, making sense of it strategically to produce “strategic Knowledge”. “Making sense of Information” means here to be able to use it in various pre-defined contexts and run simulations. These simulations are to assist the strategic decision-makers in assessing which strategies have the most suitable potential-to-risk ratio. 

How should the operational Knowledge be structured to enable these strategic simulations? 

I have been recently introduced by Dennis Sherwood (author of “Seeing the Forest for the Trees – A Manager’s Guide to Systems Thinking”, Nicholas Brealy Publishing, 2002) to Systems Thinking in the organizational context. I strongly recommend Dennis’ book but in a few words, “the essence Systems Thinking is that the complexity of the real world can best be tamed by seeing things in the round, as a whole. […] Taking a broad view, however, is not at the expense of missing the detail […]. Nor is it a question of broad brush versus detail; rather, it is one of taking a broad view in the context of the right detail, of truly […] seeing the forest for the trees.” The idea here is then to illustrate operational Knowledge in a systemic form (a causal loop more precisely) where all stakeholders are linked up through a network of inputs and outputs. These ins and outs are to represent the influences these stakeholders have on each other. Influences are either positive or negative (never neutral). These systems include levers and outcomes. The levers are the variables for defining an initial context for the simulation. The outcomes give the results of the simulation. Various off-the-shelves software will enable you to relatively easily design such an organizational system. 

However, the complexity isn’t with the technical design but rather with defining the relationships between stakeholders, or in other words, with having a clear understanding of how the organization operates. Building effective organizational systems must therefore involve experienced individuals from different key functional areas in the organization. No single individual can have the required knowledge to do this alone. 

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Business Intelligence needs to get more strategic.

I would like to focus in the next few posts on a specific knowledge-related activity: Business Intelligence (BI). 

 I will start by quoting the following article. It introduces very well what BI can ultimately enable at the retail end of a supply chain. A question I am asking myself is: If relatively mass market companies eventually manage to provide tailored products and services to individuals, how will luxury market companies respond to maintain their competitive advantage in terms of personalized products and /or services? 

<< Science fiction business is not so alien : The futuristic technology used by shops in the film Minority Report is not very far from current reality>> James Murray, IT Week, 28 Feb 2006 

 When starting work on his 2002 sci-fi film Minority Report, one of director Steven Spielberg’s first acts was to invite a team of scientists, philosophers and designers to a “think tank summit” to envisage how the world would look in 2054. […] the summit proved pretty effective and the depiction of a dystopian society where all advertising is tailored to the individual customer is looking more prophetic with each passing year. Minority Report’s vision of a world where people walk into Gap to be faced by holographic staff who greet them by name and ask how they’re getting on with their past purchases is intended as a nightmare scenario […]. 

But the fact Gap, as well as Guinness, Bulgari and Lexus, agreed to be involved suggests that this concept of individualised marketing is less a horror story, more a model of corporate efficiency. The fictional systems that in Minority Report allow firms to tailor adverts to customers’ tastes are only an extreme version of analytical business intelligence (BI) tools that are already available and being embraced by many firms. 

Even before 19th century department store mogul John Wanamaker complained, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half,” firms were looking for ways to guarantee returns on marketing. But in the last few years, evolving analytical reporting tools coupled with an exponential increase in computing power have resulted in BI systems that provide an answer to this age-old dilemma. The latest generation of BI tools can analyse massive data warehouses to give firms a much better insight into customers’ habits and work out which buyers to target with which products. 

Online vendors such as Amazon were among the first to use this functionality to recommend items based on preferences of similar customers, but such systems are now being widely used in traditional shops to optimise pricing and marketing. Applying the same BI capabilities to internal data has also given firms real-time information on supply chains and performance, allowing them to optimise processes. For example, several US clothing firms now analyse demographic and sales data in such depth that they can tweak supply chains so that the right clothes always go to the right stores. New York gets extra Armani suits and Florida receives all the surplus XXL Bon Jovi T-shirts. This level of insight may make privacy advocates nervous, but according to recent reports, the way BI systems help optimise almost every aspect of companies’ operations – from production, through the supply chain to marketing – means those with a BI strategy are already outperforming those without […]. >> 

 Link to complete article: http://www.itweek.co.uk/itweek/comment/2151089/science-fiction-business-alien 

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Becoming a Knowledge-driven Organization in response to more knowledgeable customers in the luxury market

Customers increasingly demand more personalized products and services. When the chosen product is relatively standard (mass-produced) they demand a personalized service around it. When the service is relatively standard (non-differentiating) they demand the resulting experience(s) to be unique. 

In the World of luxury, this will not sound particularly new and challenging. For instance, the Richemont Group “Maisons” (French term used to represent the Brands owned by the Group) have been aiming to provide personalized product and services since their creation. However, even for them the context and the rules of competition are changing. Richemont customers, as much as for any other organization, do have increasingly access to more specific on-demand and interactive information. 

Customers are more knowledgeable about luxury products and services and about our competitor’s products and services. As a direct result, they have also more choice, or more precisely, they are more aware of having a choice. Of course, one key medium at the origin of this phenomenon is the World Wide Web. 

It is now common for Cartier customers to download from a non-official web site a detailed product spec-sheet; and bring a printed copy to a Cartier boutique in order to be shown the product. 

Another illustration is the frustration of Panerai Management faced with a totally legal web site selling bracelets for Panerai watches. 

Even more worrying is the fast growing so-called “grey market” for watches, already a significant problem in North-America (these are genuine Richemont watches bought by wholesale accounts to be diverted onto a parallel network to be sold – usually on the Web - at discounted retail prices). 

Traditional luxury companies will also face new types of competition. One of the most successful among wealthy people is fractional ownership. This is based on the old concept of time-sharing: Luxury products such as yachts, private jets, upmarket properties or luxury cars are shared by individuals who probably could afford to buy them outright, but find it much more cost-effective not to do so. 

What should be a concern for the traditional luxury brands is that this concept is starting to be available for fashion products as well such as ladies bags (http://www.bagborroworsteal.com/). Furthermore, existing or potential customers can easily share experiences and opinions on a specific luxury product and its related services, therefore at best, entering a point of sale with more pertinent knowledge; or at worse, deciding to opt for the competition before a sales-executive even had a chance to promote his products. For instance, there are very successful independent websites dedicated to luxury watches and watch-making where existing and potential owners of these wonderful time pieces can share related information. 

Jaeger-Le-Coultre benefits from such a website exclusively focusing on its products. It includes a Forum where customers, dealers and even JLC employees exchange experiences, ideas and opinions on various models (http://www.thepurists.com/). The key fact to note is that the website is independent: JLC management did not create it, has no input and even less control on its content. 

This new competitive environment indicates that luxury Brands should focus on bridging the gap between them and their customers through co-creation of value with the customers (Prahalad & Ramaswamy, The Future of Competition, 2005). The idea is to organize companies in such a way so that all their valuable human resources based knowledge is leveraged through the creation of value for our customers and for the organization. This is done best in co-operation with the customers themselves. When a customer submits a problem at a point of sale of a particular international Brand name, the customer is in fact asking the whole company, not just the front line employee. 

Now can the organization ensure that the right person with the right knowledge is solicited at the right time to satisfy the customer? This is what becoming a knowledge-driven organization is ultimately all about: satisfying our customers faster and better and increasing revenue and profit as a result. A Knowledge-driven organization is focused on providing all the knowledge tools and assistance each of its front-line collaborators could benefit from, in order to deliver a better service. A knowledge-driven organization is inherently a customer-focused organization. 

Typical Product and/or Market-focused Organization schematic representation:  

 The Organization/Customer Gap is reduced through product design assumed to satisfy the customers and through market analysis to adapt to each markets. The rationale is that the organization “knows” best what its customers need/want.

A Knowledge-driven and customer focused Organization simplified schematic representation:  

A Knowledge-driven Organization sees its customers at the top of the pyramid with the whole Organization at their service. The goal is to co-create with the knowledgeable customers valuable and personalized experiences. In other words, such an Organization does not sell only products and services anymore but sells experiences. 

Read Verna Allee's comment to this post.

The Human Capital Formation

Click on diagram to enlarge. THE VIRTUOUS PROCESS OF HUMAN CAPITAL FORMATION. Tom Stewart in his book “The Wealth of Knowledge” (2001) demonstrates how the building and leveraging of organizational knowledge assets can be at the heart of value generation. In chapter 14 (pages 311-313) he refers to Nick Bontis excellent work (http://www.nickbontis.com/ ) on human capital formation (see Nick's comment to this post). Based on this, I have devised a diagram illustrating the virtuous knowledge-driven processes that an organization should emphasize and consciously leverage upon. The 3 goals are to:

• Reduce Human Capital depletion.
• Increasing Income per Employee.
• Company performance in line with Strategic goals.

This virtuous process is to be maintained through a creative tension between the Company performance and both a Knowledge-Driven Organizational Culture and Knowledge-driven Organizational Capabilities.

This diagram might seem a bit too theoretical at first but it is in fact a pragmatic model. The process starts at the top of the diagram with common-sense and practical principles such as a strong charismatic leadership, recognition of individual and team performance, proactive career development or knowledge-driven recruitment process. An important fact to note here is that the implementation of these principles usually does not require very time-consuming and costly projects/initiatives. They tend to “pay for themselves” in the early stages, providing that they are recognized as strategic and benefiting from top-management support. Peter-Anthony Glick Leveraging Organizational Knowledge

Read Nick Bontis' comment on this post.

Open question: What does a flatter World mean in terms of organizational Knowledge Management?

This is to start a discussion thread on the impact of our World getting flatter - mainly due to technological advances - on Organizations and their efforts to leverage their value-added Knowledge. Note: To get a really good sense of this flattening of the World, I advise you to read "The World Is Flat: A Brief History of the Twenty-first Century" by Thomas Friedman (2005)  http://www.thomaslfriedman.com/worldisflat.htm 

 Reem Saied gives a good short analysis of Freidman's book. http://reemsaied.blogspot.com/2005/05/world-is-flat.html 

 An initial assertion: A Flat World increases the power of individuals through their specific knowledge. Technological advances have made the World become “flat” and successful organizations of the future will be the ones that embrace this fact and take full advantage of it before their competitors. This increasingly flat World is described by Thomas Friedman as “[…] a global, Web-enabled playing field that allows for multiple forms of collaboration – the sharing of knowledge and work – in real time, without regard to geography, distance, or, in the near future, even language”. In such a World, it is clear that the span of influence of each individual is virtually the entire World. 

The key value-adding differentiator for individuals is their specific knowledge (as the sum of their skills, competences and experiences, modulated by their interpersonal qualities and cultural background). Peter-Anthony Glick Leveraging Organizational Knowledge