Knowledge management and intellectual capital Essay

Knowledge is something that comes from information processed by using data. It includes experience, values, insights, and contextual information and helps in evaluation and incorporation of new experiences and creation of new knowledge. People use their knowledge in making decisions as well as many other actions. In the last few years, many organizations realize they own a vast amount of knowledge and that this knowledge needs to be managed in order to be useful. â€Å"Knowledge management (KM) system† is a phrase that is used to describe the creation of knowledge repositories, improvement of knowledge access and sharing as well as communication through collaboration, enhancing the knowledge environment and managing knowledge as an asset for an organization. Intellectual capital is considered as a key influencer of innovation and competitive advantage in today’s knowledge based economy. Knowledge management helps in obtaining, growing and sustaining intellectual capital in organisations. This paper focuses on how knowledge management and intellectual capital helps the organization to achieve their goals and as well as the relation between these two concepts. Key words: knowledge management, intellectual capital, organizational goals, benefits Introduction: Knowledge is something that comes from information processed by using data. It includes experience, values, insights, and contextual information and helps in evaluation and incorporation of new experiences and creation of new knowledge. Knowledge originates from, and is applied by knowledge workers who are involved in a particular job or task. People use their knowledge in making decisions as well as many other actions. In the last few years, many organizations realize they own a vast amount of knowledge and that this knowledge needs to be managed in order to be useful. Knowledge management is not one single discipline. Rather, it an integration of numerous endeavours and fields of study. Knowledge management is a discipline that seeks to improve the performance of individuals and organizations by maintaining and leveraging the present and future value of knowledge assets. Knowledge management systems encompass both human and automated activities and their associated artifacts. So, what is Knowledge? Knowledge is a fluid mix of framed experience, values, contextual information, expert insight and institution that provides an environment and framework for evaluating and incorporating new experiences and information. From this perspective, knowledge management is not so much a new practice as it is an integrating practice. It offers a framework for balancing the numerous of technologies and approaches that provide value, tying them together into a seamless whole. It helps analysts and designers better address the interests of stakeholders across interrelated knowledge flows and, by doing so, better enables individuals, systems and organizations to exhibit truly intelligent behaviour in multiple contexts. The reasons why companies invest in KM are that it either gives them a temporal effectiveness or efficiency advantage over their competitors, or they do it to try to negate the competitive advantage of others. For the purpose of this research, KM is defined to include the five fundamental processes of: (1) Knowledge acquisition (KA) (2) Knowledge creation (KC) (3) Knowledge documentation (KD) (4) Knowledge transfer (KT) and (5) Knowledge application (KAP) These five KM processes are not necessarily sequential but rather iterative and overlap. The effective management of knowledge necessitates a thorough understanding of the relationships not only among the KM processes themselves but also between the KM processes and the intellectual assets of an organization. Intellectual capital (IC): Intellectual capital can include the skills and knowledge that a company has developed about how to make its goods and services. It also includes insight about information pertaining to the company’s history; customers; vendors; processes; stakeholders; and all other information that might have value for a competitor that, perhaps, is not common knowledge. Intellectual capital is therefore, not only organizational knowledge, it is also industry knowledge. It is the combination of both cognitive knowledge and intuitive/experience-related knowledge. Intellectual capital is known for creating innovation and competitive advantage in this knowledge based era. But knowledge management plays a dominant role in obtaining, growing and sustaining intellectual capital in organizations which implies that the successful implementation and usage of KM ensures the acquisition and growth of Intellectual capital. Organizations should deploy and manage their IC resources in order to maximize value creation. The IC term was first introduced by Galbraith (1969) as a form of Knowledge, intellect, and brainpower activity that uses knowledge to create value. Since then, different views of IC have been emerged. For instance, view IC as a knowledge that can be converted into value. IC as the aggregation of all knowledge and competencies of employees that enable an organization to achieve competitive advantages. In addition, IC is defined to include all non-tangible assets and resources in an organization, including its processes, innovation capacity, and patents as well as the tacit knowledge of its members and their network of collaborators and contact. In spite of its multidimensionality, this research conceptualizes IC as consisting of three basic interrelated dimensions: Human capital (HC) Organizational (or structural) capital (OC), Relational (or customer) capital (OR) Human Capital encompasses attitudes, skills, and competences of the members of an organization. Organizational Capital includes elements such as organizational culture, routines and practices, and intellectual property. Relational Capital, however, includes relationships with customers, partners, and other stakeholders. The investments in Human Capital, Organizational Capital, and Relational Capital are expected to increase the value of an organization. The management of intellectual capital involves: Identifying key IC which drive the strategic performance of an organisation. Visualizing the value creation pathways and transformations of key IC Measuring performance and in particular the dynamic transformations. Cultivating the key IC using KM processes The internal and external reporting of performance Knowledge management and Intellectual capital: IC and KM serve different purposes and include the whole range of intellectual activities from knowledge creation to knowledge leverage. IC and KM as a set of managerial activities aiming at identifying and valuing the knowledge assets of an organization as well as leveraging these assets through the creation and sharing of new knowledge. KM and IC are believed to be closely coupled. When KM activities are used to develop and maintain IC, it becomes a resource of sustainable competitive advantage. On the other hand, when IC is properly utilized and exploited, it increases the absorptive capacity of the organization, which, in turn, facilitates its KM processes. Knowledge can add value to organizations through intangible assets such as Intellectual capital. Conceivably, the socialization, externalization, combination, and internalization (SECI) model is a more fitting theoretical foundation for understanding the KM-IC relationship. The SECI model outlines different interactive spaces (Ba), in which tacit knowledge can be made Explicit. The IC components (e.g. HC, OC and RC) represent the input for the knowledge creation process in the SECI model, and its main output takes the form of commercially exploitable intangibles. The four processes of the SECI model involve not only knowledge creation and utilization but also the other KM components including knowledge transfer, knowledge documentation, and knowledge acquisition. Knowledge transfer (sharing) is the common factor of the four processes of the SECI model. Socialization facilitates the conversion of new tacit knowledge through shared experience, which allows the less communicated knowledge to be communicated. Therefore, the socialization processes involve knowledge transfer. In addition, externalization is the process of articulating tacit knowledge into explicit knowledge, which can be shared by others. In the combination and internalization processes, knowledge is exchanged and reconfigured through documents, meetings, or communication networks. Effective execution of the SECI processes can generate different types of IC. Socialization involves the accumulation of HC, OC, and RC by sharing and transferring experiences through joint activities. Also, the conversion of tacit knowledge into explicit knowledge through externalization creates and accumulates OC. Combination creates knowledge structures in the form of systemic, institutionalized knowledge (i.e. OC) that can be directly disseminated and distributed. Internalization, on the other hand, accumulates HC and RC through learning by doing. Review of Literature: Francis Bacon has emphasized on importance of knowledge management in organizations with his famous phrase â€Å"knowledge is power† (Muller-Merbach, H. 2005). The strategy that considers knowledge along with other resources such as land, work and capital as an asset is knowledge management (Nonaka and Takouchi, 1995). Dell (1996) believes that knowledge management is a systematic approach for finding, understanding and applying of knowledge in order to create knowledge. According to Simon (1999) knowledge management is intelligent planning of processes, tools, structures and etc with the purpose of increasing, restructuring, sharing or improving of knowledge application that is apparent in each of three elements of mental capital, i.e. structural, human and social. Some of the clear-sighted believe that knowledge management is not a technology (Clair Guy, 2002; Lang, 2001; DiMatta, 1997; Koenig,2002; McInerey, 2002). This process helps organizations to be able to use their assets, work faster and more wisely and obtain more capital (Shawarswalder, 1999). An increased attention is focused on KM and IC management in the organisation. In the last decade there has been a shift in management focus from traditional accountancy practices where financial capital is paramount, to growing realisation that intangible assets are of greater significance in our knowledge-based economy (Egbu et al 2000, 2001). Knowledge can be a valuable resource for competitive advantage and harnessing its value is one of the pre-eminent challenges of management. Identifying and exploiting knowledge assets, or intellectual capital (IC), has been vastly documented. There are different types of knowledge in an organisation from the tacit knowledge of individuals, which is unarticulated and intuitive, to explicit knowledge that is codified and easily transmitted (Nonaka and Takeuchi, 1995). Further distinctions have been made by academics and practitioners involved in the IC debate. Three components of IC have been identified comprising human, structural and customer capital (Edvinsson, 2000; Bontis, 1998; Bontis et al., 2000). However, it is asserted that the human capital in an organisation is the most important intangible asset, especially in terms of innovation (Edvinsson, 2000; Stewart, 1997; Brooking, 1996). Marr et al. (2003) argue that KM is a fundamental activity for growing and sustaining IC in organizations. Bontis (1999) posits that managing organizational knowledge encompasses two related issues: organizational learning flows and intellectual capital stocks. Organizational learning, as a part of KM (Rastogi, 2000), reflects the management’s effort to managing knowledge and ensures that IC is continually developed, accumulated, and exploited. A thorough review of the relevant literature and discussions with targeted researchers in the field would suggest that the development of successful knowledge management programmes involve due cognisance of many factors. Compilation of data: Knowledge Management consists of managerial activities that focus on the development and control of knowledge in an organization to fulfil organizational objectives. The knowledge sharing takes place in the organizations in two ways, explicit and tacit. The knowledge management seem to in two tracks as dynamic process or static object. Depends on how individuals understand what knowledge is and their aims both intellectual capital and knowledge management actors thus emphasize either the static or the dynamic properties of knowledge. Measuring the knowledge management is growing area of interest in the knowledge management field. The metrics are being developed and applied by the some organizations, but limitation of current measures is that they do not necessarily address the knowledge level and the types of value added knowledge that individuals obtain. The intellectual capital is most valuable asset it brings intellectual capital firmly on to the management agenda. The sum of everything everybody in organization knows that gives a competitive edge in the market place. The individual intellect effect more attribute of an organization. The intellectual capital characterizing as Intellectual material that has been formalized, captured and leveraged to produce the static properties of knowledge are inventions, ideas, computer programs, patents, etc., as Intellectual Capital also include human resources, Human Capital, but emphasize that it is clearly to the advantage of the knowledge firm to transform the innovations produced by its human resource into intellectual assets, to which the firm can assert rights of ownership. The measures for intellectual capital in use: 1. Value extraction 2. Customer capital 3. Structural capital 4. Value creation 5. Human capital Components of intellectual capital: Human capital indicators Structural capital indicators The knowledge management community needs to be responsive to the needs management in the organization by trying to adequately measure the intellectual capital and assess the worthiness of the knowledge management initiatives. Developing metrics and studies for measuring intellectual capital will help to consolidate the knowledge management field and give the discipline further credibility. Applying of knowledge is very important to the supply chain design and operation. Intellectual capital and knowledge management principle helps to enterprise supply chains. Knowledge management is formalizes approaches to understanding and benefiting knowledge assets at the firm level. The drivers which maximizes the enterprise supply chains Operational efficiency Opportunities to better service customer and stakeholders need A spring board for innovation A foundation concept in the field of intangible assets that is important for practice in that there are two dimension of knowledge, explicit and tacit. Next we develop these ideas further by interleaving intangible and traditional firm assets. Later we indentify the special characteristics priorities for the four generic supply chain models The intellectual capital approach: Intellectual capital comprises all the nonmonetary and nonphysical resources that are fully or partially controlled by the organization and contribute to the value creation. Three categories of intellectual assets are organizational, relationship and human. Strategies to manage knowledge: 1. Operational excellence 2. Design excellence Conclusion: Hence we would like to conclude that this paper has considered the importance of knowledge management and intellectual capital to organisations. Knowledge management practices differ from organisation to organisation. Organisations are at different stages in the knowledge management trajectory. Organisations ‘learn’ at different rates and apply different techniques (formal and informal) in managing knowledge. In the study on which this paper is based, there is a general consensus that the management of knowledge assets is vital for business. Knowledge Management and Intellectual Capital should be integrated to maximize organizational effectiveness. However, the relationship between KM and IC is complex and so is its management. In order to effectively manage such a relationship, it is imperative to understand where and how the accumulated IC is reflected in managing KM activities in organizations. The management of knowledge and intellectual capital provides opportunities for project creativity and innovation. However, the effective implementation of knowledge management in organisations depends on many factors, which includes people, culture, structure, leadership, people and the environment. In most organisations, there is a lack of appropriate formal measuring constructs for the measurement of the benefits of knowledge assets to organisational performance. Managers operating in the knowledge economy are required to be â€Å"knowledge leaders,† who must be aware of the relationship between knowledge and those who possess it in order to successfully fulfil their leadership responsibilities. Based on the findings of this research, managers in the organizations are expected to develop strategies, adopt structures, and construct systems that effectively coordinate and integrate the efforts aiming at managing knowledge, human resource, and customer relationship in order to enhance knowledge flows, accumulate IC, and create and sustain business values. References: Intellectual capital and knowledge management: A new era of management thinking?- Jodee Allanson Reconfiguring knowledge management – combining intellectual capital, intangible assets and knowledge creation – Tomi Hussi Intellectual capital and Knowledge management effectiveness Bernard Marr, Oliver Gupta, Stephen Pike, Goran Roos. Developing knowledge management metrics for measuring intellectual capital – Jay Liebowitz Influence of KM and Intellectual capital on organisational innovations – Charles Egbu, Katherine Botte rill and Mike Bates