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Strategic Management in Business
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Strategic Systems Thinking (ST4S39)
Lecturer: Prof. Dr. Mike Nkasu
âBefore we measure something we must ask whether we understand what it is we are trying to measure.â
(Gray et al, 2015)
Word Count
( 3,680 )
September, 2017
Strategic Knowledge base: The FCC and New Beginnings
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Strategic Systems Thinking would be incomplete without a Strategic Knowledge base. Countless frameworks have been developed to the benefit of knowledge systems, whilst few have actually sought to place this knowledge management in the larger context of strategic systems thinking.
This paper analyses the foundation and framework of the Knowledge System as a whole, whilst highlighting its importance in the context of Communities of Practice (CoP). It also highlights the role it assumes in Intellectual Capital (IC) - a pillar of the practice, without which IC would be just another vague concept. Knowledge management is the head to which Performance Management is the tail, which is a means to an end of the measurement. This paper also draws attention to the fact that knowledge management is fuelled within a Social Network.
This paper highlights the fact that all the above; Communities of Practice, Intellectual Capital and Social Networks are bound by the rope of knowledge, and ultimately explores these themes in the Federal Character Commission. It also strategizes on the effective development of the knowledge base within the FCC, surmising that the FCC needs to do more to develop theirs.
Keywords:
Strategic Knowledge; Strategic Thinking; Measurement; Federal Character Commission
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In the spectrum termed life, there exists a varied range of objects and concepts that possess value, despite being unquantifiable. Be it emotion, ambition or even knowledge. However, the question is posed thus: can it be measured? And, if it cannot be measured, does it still possess value? On the same wavelength, other questionable factors are; can it be stored? Moved? The answer lies with Gray et al (2015) stating that prior to the measurement of something, the first step is to understand what is being measured.
In the business world, in precision- the managerial world, such questions are ongoing in the field. Can knowledge amongst others be measured? Owing to the fact that there exists a heightening in awareness of strategic assets of value to a company that are not typical on-paper expectations, the objective of the paper is to scrutinise imperative aspects crucial to a company, firm, organisation and business. Some of the aspects were otherwise formally ignored, but are gaining headway, in the pinnacle of importance to a companyâs progress. In favour of this- Communities of Practice, Performance Measurement, Intellectual Capital and Social Networks will be explored, in relation to the strategic knowledge base which serves as a foundation for all.
âKnowledge is powerâ, is a globalised expression. Wenger and Snyder (2000) echo such a view with the outlook of the economy of the modern day time- being ârun on knowledgeâ. Van den Berg (2012), to the same end states that knowledge is at the centre of the economic locale. Being the case, companies work assiduously to exploit on such a fact (Wenger and Snyder, 2000).
To create value, and evolve the growth of strategic theories, companies are heightening their knowledge base (management and environment). Arrow (2000) says companies are adopting a knowledge-based view (KBV) of production. In other words, a shift from the routine âplanningâ standpoint, to the resource-based view of strategy. It however, must be taken into consideration the possibility of knowledge being measured. But being conceptual and abstract is it plausible? And if so, does this call for awareness and proactivity to knowledge existence and management or knowledge environment? Organisations, firms and even groups like Communities of Practice are motivated and thrive by knowledge.
A Community of Practice or Interest (CoP) is a community brought about a by a common interest. Here, knowledge is shared. It connotes a community that involves shared learning and puts its interest into Practice. It provides its members with a sense of belonging, and a definite seat. A CoP is not to be confused with simply put a community, or other forms of organisations. They have the ability to improve organisations (Wenger and Snyder, 2000), and their output is definitely knowledge.
Social networks are important in the idea of Intellectual Capital because this was how it began. A Network is known as a connection or association between social objects over time (Tichy et al, 1979). Hence, a social network is the breeding ground for intellectual capital, as well as value creation. The question of whether or not knowledge can be measured ties in with the concept of Intellectual Capital (IC). Intellectual Capital is yet another valued asset to an organisation that Thomas A. Stewart states bears no ultimate physical form yet still possesses the capacity for generating profit. It is a representation of the actual hidden value of a company and promotes âLearning Organisationsâ which are to equip the organisation for advancement in value. It pushes forward the ideology that other than the numbers accrued over a financial period, which is paper worthy, there are other aspects of a company- otherwise ignored, that possess characteristics
Whittington (2011) define knowledge as consciousness, awareness or familiarity gained by learning or experience. The keyword here is âexperienceâ. This connotes that knowledge grows from activity. Bollinger and Smith (2001) state that it is a âStrategic assetâ, Grant (1996) heightens this definition by terming it the âmost important strategic assetâ of a firm. Van Den Berg (2013) argues that it is much more than âsimply a resourceâ as Eisenhardt and Santos (2002) declared, but the âessential conditionâ bestowing resources with strategic importance. It not only surpasses basic resources, but it is the magic ingredient to economic growth and value. Hence, the importance of it cannot be undermined.
There lies in importance, the compulsive condition to distinguish between existing forms of knowledge as Von Hayek (1945) rightly suggests. There are two main types namely: Tacit and Explicit/Codified. However, Van den Berg (2013) argues for the inclusion of one more: Encapsulated. Nevertheless, for sake of the research scope, only the first two will be explored in detail.
Tacit knowledge is defined as knowledge bordering on expertise, practical skill, involving execution, and according to Nelson and Winter (1982) must be acquired, learned and accumulated experience- wise. Termed the âprocedural know-howâ by Kogut and Zander (1992), it possesses a distinctive characteristic of being the interpreter of codified knowledge, and is resident in the human mind. Its uncodified, its transference is slow, though acquirable through observation and imitation, it manifests only in application, requires a degree of intimacy and permanence, and according to Choo (2002) is expensive, requiring complex interactive structures.
Explicit or codified knowledge on the other hand differs from tacit knowledge in the area that its replication is inexpensive to transfer and diffuse. It can border on observability, and information, and can be passed without loss of integrity (Kogut and Zander, 1992). Saviotti (1998) states its uniqueness as its non-rivalrous and non-excludable nature. Its intra-firm codified knowledge circulation may be inexpensive, but this also creates possible misappropriation outside the firm. Hence, Teece (1998) states that firms set up definite boundaries in strategic consideration of such.
Encapsulated knowledge differs from both Tacit and Codified in the area of its distinguished marketability (Teece, 2000). It retains the degree of complexity, otherwise lost with the codification of it. Its knowledge encapsulated in an artefacts design and functionality, its value readily obtainable through the sale of commercially valuable devices or items.
Knowledge management as defined by Demarest (1997) is the systematic foundation, observatism, measurement and optimization of the companyâs knowledge economies. Demarest also states that it is the key to effective competition. Demarest (1997) states, and as seen on the case study of the Essex Policeâs âPlan on a Pageâ, that innovation begins with the construction of a novel sort of knowledge within an organisation. With the knowledge of need for a change, and equipping the workforce with both tacit and explicit knowledge, there was an innovative transition in the police force.
Now, organisational knowledge is the topic of exploration in this paper. Ichijo and Nonaka (2006) state that the creation of knowledge organisationally, does not mean that the organisation members complement one another to conquer an individualâs restricted reality. However, it does mean that this tacit, subjective knowledge held by an individual is externalised into an objective,
explicit knowledge shareable within and beyond the firm. Hence, the individuals tacit, knowledge is enriched with this new knowledge, this is what drives an organisation forward. This is what an organisation needs to enhance worth and value creation. This transition from personal, subjective knowledge being synthesized and validated into a socially objective one, a ânew knowledgeâ is what they term the SECI process (Socialization, Externalization, Combination and Internalization). Socialization: Tacit knowledge to tacit knowledge, Externalization: tacit knowledge to explicit knowledge, Combination: from explicit to explicit knowledge, and Internalisation: from explicit knowledge to tacit knowledge. In turn, the marketâs justification of this new knowledge will then lead to the creation of another new knowledge.
How does this tie in with the other themes? Communities of Practice, Social Networks, Performance Management and Intellectual Capital, all revolve around knowledge, whether it is for the creation of it, the usage of it, or the need for/of it.
Figure 1.1 , in Appendix, pg.1 , displays the basic components of a knowledge-creating firm. This image indicates that knowledge is created through dynamic interactions with ones environment. It serves to illustrate the incessant progression of conversion between subjective, tacit knowledge and objective, explicit knowledge. A major component of this is ba meaning the âshared context in action, wherein knowledge is shared, formed, and utilized more than the description of a Community of Practice with the learning process. And this is what organisational knowledge is all about. It is a locale for knowledge creation.
In an organisation, it is imperative to develop both Tacit and Explicit knowledge (Nonaka and Takeuchi, 1995). This is evident in the case study: ChevronTexacos Communites of Practice. This firm offered insights as to how both tacit and explicit knowledge can be developed. Here, explicit knowledge is being developed by provided links to internal and external knowledge information nodes i.e. databases, benchmarking data and previous studies, and establishment of Global Refining Networks which provide rapid connection between inquisitive staff and those with fitting expertise and knowledge. Likewise, tacit knowledge is developed by enabling and accelerating the timely and efficient adoption of new technologies, value-adding practices and lessons learnt and network metrics. Chevron possesses a technology Rapid Execution (TRex) networks. These transfer tacit knowledge between technical and operations staff for cost-saving and performance-improving technology advancement.
The Federal Character Commission, in relation to knowledge Management, can be said to not possess a sturdy knowledge base despite being an organisation in requirement of it. In this organisation, information is more of explicit/codified than tacit. Of course there is interaction and training, but moreso, it is mainly âinformationâ that is made readily available.
Based on the SECI model, Figure 1 , in Appendix, pg.1, the FCC by establishment should be a knowledge-creating firm. It possesses the Knowledge Vision: our reason for existence? However a lot of the organizations personnel are not intellectually inspired to create this knowledge because of a lot of the top managers who staunch this passion. But a firmâs vision is more than empty words, its Driving Objectives is the concrete motivation or goal that âtriggersâ or fuels the knowledge-creating process. However, at FCC the motivation of the employees are lost on most of the top managers, who are self-motivated. In Choongâs (2008) article on Skandia AFS for example, the driving objective was highlighting and making tangible a companyâs hidden value 8
By Social Network, Nahapiet and Ghoshal (1998) term it a âSocial Collectivityâ, because it involves the presence of people- in an organisation, firm or even an âIntellectual Communityâ. In such a setting, there are bound to be bonds and relationships formed both internally and externally termed âSocial Capitalâ: the central definition being that networks of relationships form a precious resource for the conduct of social affairs. (Nahapiet and Ghoshal, 1998). It comprises of structural, relational and cognitive dimensions. It creates intellectual capital (IC) as seen in Figure. 3, pg. 2 of Appendix. Itâs one of the main categories that create balance in Intellectual Capital. The others are: Human Capital, Structural Capital and Customer Capital.
Human Capital: refers to the people within the organisation: skills, learning ability, quality management, core competencies, competence and knowledge base of its employees^. Structural Capital: refers to the processes and operations of the organisation, cultural set up and the innovativeness in its operations. The Customer Capital: refers to the value of external relationships, and how customers are treated and valued in the organization: âGoodwillâ.
Intellectual capital (IC) is also known as Intangible Assets (IA) because it considers those assets of a company that cannot be touched, but still makes you rich (Thomas A. Stewart, FORTUNE). Hence, Edvinsson and Malone (1997, p.22) say theyâre intangible because they have no physical existence, but they are still of value to the company. Rastogi (2003) defines it as the holistic prowess and potential of a firm, for making or creating value. The same duo describes IC as âthe difference between the firmâs market value, and its book value of entityâ. IC says that a firm is much more than a stated outcome, it is all the people, ideas, relationships, experiences, skills, training etc. that creates more value for the company. Skandia AFS is imperative to this analysis because it illustrates how IC can be measured.
Choong (2008) listed Kaplan and Nortonâs (1996, 2000) balanced scorecard method, as one of the widely established methods. This was how the indices (Human, Structural and Customer Capital) emerged. A Base ratio was developed for each of these items- Innovation, Number of Customers and Development. Measurement is important because it not only aids in the systematic management of these hidden values, but can also provide deeper insight into future growth and reveal values vital to the organisations strategic future (Edvinsson, 1997). The challenge to measurement however is the complicated measurement of measuring the intelligence of a corporation, being dependent on subjective evaluation.
In strategizing in complex systems, performance measurement helps develop the knowledge base of an organisation. Itâs valued for its insight on its illumination of whether leaders are on the correct path to the achievement of strategic goals. The challenge is measurement. There are too many to choose from, and how does one begin. However it is imperative because it enables the evaluation of business results in different units, hence improving upon management making informed decisions e.g. recruitment, budget concerns or make efficient the business process (Worth, 2016). In order to measure, âPerformance Management Systemsâ , âQuality Improvement Systemsâ, âDashboardsâ, âMetrics e.g. Skandia AFSâ, and the âBalance Scorecardâ as in Skandia
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AFS are used. To enable measurement certain steps must be taken: a definition of clear objectives, identification of Critical Success Factors, Key Performance Indicators (KPI) and then targets are set. A crucial factor is KPI. Worth (2016) states that KPIs chart an organization to success, measure progress, and are so crucial that the wrong KPIs can drive an organization to ruin.
A successful scenario is the Essex Police Force, with their Plan on a Page they achieved consensus in strategic goals, and a clear communication of their priorities.
All these and their strategic knowledge base tie into the concept of systems thinking. Reisman (1979) defines Systems Thinking as an array of resources, organized in such a way that the desired results are obtained owing to the organization of their designated functions. In this sense, systemsâ thinking is only possible with a sound knowledge base. It advocates, interaction, interconnectedness, and holistic improvement which is what all the themes addressed in this paper are about i.e. CoPs, Social Networks and IC, Performance Management and Knowledge Management.
In order for the Federal Character Commission to develop their strategic knowledge base, they must become ba. Refer to Appendix pg. 1, Figure 1.1. In other words they must become knowledge advocators, not just creators (Top Management): become Self-organized with parallel purpose, restructure their objectives, possess a definite direction, and mission. They must also create a shared sense of principle. They must support variety of knowledge. Should open boundaries, and be dedicated to participants. What is their IC? Have they measured performance? Would they advocate CoPs both internally and externally? Are they ready for new beginnings? And just like Ackoffâs car, they need to work together. In conclusion, new knowledge creation must be a continuous process, this is how any and every organisation will remain valid in an ever changing society.
Figure 3.1 Social Capital in the Creation of Intellectual Capital
Source: Adapted from Nahapiet, J. and Ghoshal, S. (1997)
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Zhou, K. Z. and Li, C. B. (2012) âHow knowledge Affects Radical Innovation: Knowledge Base, Market Knowledge Acquisition, and Internal Knowledge Sharingâ, Strategic Management Journal, 33(9). pp. 1090â1102. doi:10.1002/smj.
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