Knowledge as a capital asset

By Åse Dragland
Illustration: Ingvild Fagerberg

Ten people are seated in a company meeting room discussing the development and marketing of a new computer system. Assembled around the table is «intellectual capital» worth a few million dollars.

In another company, a small team has accumulated considerable knowledge concerning the construction of concrete offshore oil platforms in the North Sea. This team's intellectual capital has a much lower value since demand for this particular expertise has nearly disappeared. A few years ago, however, their intellectual capital may have been even higher than the first group's.

"Knowledge follows people and only has value when put into use or has a future growth potential," states Mona Skaret at SINTEF Industrial Management. "When the context changes, the value also changes." A recent graduate may be worth his or her full weight in gold in a modern, cutting edge company, but be worthless to a conservative company steered by rigid, old fashioned management principles.

Knowledge has become an increasingly valuable corporate asset as the application of technology is spreading. The challenge lies in using this knowledge effectively. Globalization and increased international competition have further contributed to emphasize the importance of highly specialized expertise. The number of companies relying on state-of-the-art knowledge is rising, and it is no longer production that places the highest demands on a company's resources (i.e. time and money), but rather product development, marketing and service.

The challenges

While there is general agreement that knowledge is valuable, there is still no clear understanding of how knowledge creates value for organizations.

Earlier, scientists dealt with the already existing body of knowledge ­ how to document it, convey it, and make it available to others. How to transfer the existing knowledge reducing the cost for the companies?

Currently, one is more concerned about the companies' possibilities to exploit their knowledge resources. By combining knowledge and innovations, they might increase the value of the existing assets and create new ones. "What is our most valuable knowledge and how can we make the most of it," are crucial questions companies must be answering.

The research

Mona Skaret has led a group of researchers at SINTEF Industrial Management in exploring the area of "knowledge management." The current group of 14 researchers co-operates with the Stanford Research Institute (SRI) in the US and several NTNU and SINTEF departments, among other research partners. Skaret explains that while American researchers tend to have a broader and more extensive experience in the theoretical aspects of knowledge management, Norwegians generally work in closer contact with the industry in an action oriented research tradition.

"Since the gap between top management and employees is smaller in Norway than in the States, we have an advantage when analysing the transfer of knowledge within an organization," Skaret says. She believes that effective knowledge management must be based on familiarity with a company's tasks and work culture. "Another difference is that in the US there has been a greater focus on recycling knowledge in order to cut costs in large organizations. We believe that smaller companies may also benefit from managing their pool of knowledge more effectively since a conscious effort to foster competence nurtures opportunities for growth. Our joint research with SRI shows that the patterns for competence-based growth are surprisingly similar for small and large companies," says Skaret.

Three approaches

According to the research scientists at SINTEF, there are three basic approaches to improving the dissemination of knowledge within a company:

* For transferring knowledge in a company, technological tools can be used for representing and conveying knowledge to others. This is the traditional mode of knowledge transfer: Putting knowledge into words, writing them down, and distributing them to others. For example, the offshore industry has been using shared computer databases for storing and accessing operational experience and critical tasks.

* For situational knowledge, it is essential that people experience the same situations to understand what it really is about. To be effective and innovative, you need more than a general rule for transferring knowledge. Working together on the same task improves the sharing of knowledge. Such knowledge can be incorporated in informative stories that are digitized and made available through a company's intranet. This is being explored at the Stanford Research Institute and Massachusetts Institute of Technology (MIT). The use of sound, pictures, and text often makes the stories easier to remember, and they are further categorized so that employees easily can retrieve them from the net when needed.

* It is also possible to systematically incorporate "knowledge management" into a company's strategy. In most Norwegian companies, the division of labour and the reward system favour employees who make good use of their own knowledge and maintain their relationships with partners and clients. The question is whether one should rather reward those who share their knowledge with others.

Skaret reports, "SINTEF has experience with all three approaches. A comprehensive strategy combining the approaches is important. The fact is, when the focus is turned to a company's pool of knowledge, it affects all aspects of the organization, including strategy, structure and culture."

The "KUNNE" project

"KUNNE" (the Norwegian word for "knowing" and "knowledge") is an extensive project dealing with managing knowledge for companies whose main commodity is expertise. Companies selling their expertise frequently have limited insight into their own production processes and their own relationship to customers. Skaret believes that it is essential to create an open forum that can be used to build a shared understanding of what knowledge is and define an appropriate terminology. Consequently, this will form the basis for developing and using tools for understanding how knowledge can best be attained, recycled and assessed.

"In the manufacturing industry," explains Skaret, "the focus is on physical objects. For example, the Norwegian furniture manufacturer Ekornes has standard modules for recliners that form the basis for its mass production. Perhaps some of the research knowledge can be similarly modularized, allowing consulting engineers and small consulting companies to 'industrialize' their services. Others need to be better to 'routinize' creation of new knowledge, because every new project might be substantially different from the others, leaving little room for modularization.

In the KUNNE project, a group of people, representing six companies and all employee categories ­ from upper-level management on down ­ is working with multidisciplinary research teams from SINTEF and NTNU to find ways in which to systematically foster knowledge creation. Together they are trying to answer the following questions: What are our most important areas of knowledge? What are the most important problems inherent in selling and fostering this knowledge, and how do we solve them?

Terminology and methods are developed by having the companies apply the theories in practice, test them, and experiment with them. The companies subsequently share their experience in a forum where the research group and other experts take part.

Experience with KUNNE

"Even if we don't find all the answers through the KUNNE project, the problems discussed are fundamental for many Norwegian industries," says Lasse Fjeld, president of the knowledge engineering company Computas. "At Computas our most valuable resource is intellectual capital. We believe that our company would benefit from incorporating the everyday knowledge that our employees possess into the structure of our organization. Information technology (IT) is a tool which makes this possible. Whenever we are able to transfer some of this knowledge to our organization, we are contributing to the stability of our company."

"Future managers in knowledge-intensive firms will have to learn to 'run the shop' in a more professional manner," says Thorleif Eriksen, president of the recently established company ICG.

"In order to increase a company's competitive edge, we need to develop methods for knowledge management similar to those developed by the industrial sector for product production, storage and distribution. This is still unfamiliar and uncharted territory, so actively participating in the forum that the KUNNE project offers allows us to be on the cutting edge. We believe this process offers ICG a better point of departure for further development than we otherwise would have."

Skaret says, "The response to phase 1 of the KUNNE project has been overwhelming, extremely good, and the project will continue for four more years. Two of the large companies associated with the project have achieved good economic results without any formal organizational structure. They are facing continued growth and are interested in working with us to test new organizational and management principles."