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(1)1999:017. MASTER'S THESIS. Knowledge management - the creation of an asset. Tomas Bergendahl, Nina Mattsson. Ekonomprogrammet D-nivå Institutionen för Industriell ekonomi och samhällsvetenskap Avdelningen för Ekonomistyrning. 1999:017 • ISSN: 1402-1579 • ISRN: LTU-EKON-EX--99/017--SE.

(2) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. $FNQRZOHGJHPHQWV The study was realised during the autumn of 1998 at Luleå University of Technology (LTU), Luleå, Sweden. The empirical basis was gathered at the case study company. The essence of the study deals with how to create value of Intellectual Capital by using Knowledge Management to facilitate a process for organisational knowledge creation. This is a topic of current interest in the management literature and the importance of it in today’s business life has begun to attract major attention. We would like to thank our supervisor Mr. Anders Nilsson, Ph.D. (LTU) for his support and guidance during the work. Moreover, we like to express our greatest gratitude towards the interviewees for taking the time and giving us the valuable empirical foundation enabling this study. We would also like to show appreciation to the lady at the case study company, who helpt us with all the practical work regarding interviews, tickets and more. Special thanks to our supervisor at the case study company for making this study possible. Her own interest regarding the subject, have been very valuable and inspired us during the work. Finally we would like to end with a quote that incorporates the spirit of this thesis.. ³7KHHPSLUHVRIWKHIXWXUHDUHWKHHPSLUHVRIWKHPLQG´ Winston Churchill (1874-1965). Tomas Bergendahl Nina Mattsson. ++.

(3) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. $EVWUDFW Intellectual capital and knowledge management is in itself nothing new. The area is however experiencing a revolutionary process aiming to conceptualise the terms into something more tangible and explicit. The ongoing debate and discussion concerning knowledge management in contemporary thinking, retrospective theories and articles provided the basis for the making of this study. A focus has been taken on a multinational manufacturing organisation and the purpose was through a case study to describe and analyse how the organisation acquires, share and retain knowledge, and furthermore, how knowledge can be created within the organisation. The empirical study was based on six interviews. The analysis resulted in the following conclusions. The studied organisation exhibits a structure that in many ways is not compatible with the present organisation. Though a foundation for the knowledge creation exists, concerns about the sharing- and conceptualisation process were found. The essential factor for changes being the management of knowledge.. +++.

(4) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. 7DEOHRI&RQWHQWV $FNQRZOHGJHPHQWV $EVWUDFW 7DEOHRI&RQWHQWV /LVWRI)LJXUHVDQG7DEOH. ,, ,,, ,9 9. ,QWURGXFWLRQ. . 1.1 1.2 1.3 1.4 1.5. Background..............................................................................................1 Problem Discussion................................................................................. 1 Purpose.................................................................................................... 3 Delimitation............................................................................................. 3 Disposition ..............................................................................................4. 0HWKRGRORJ\. . 2.1 2.2 2.3 2.4 2.5 2.6. Study Strategy..........................................................................................5 Scientific Positioning...............................................................................5 Study Approach....................................................................................... 6 Methods of Data Collection.....................................................................6 Literature Study....................................................................................... 7 Method Problems.....................................................................................7 2.6.1 Reliability....................................................................................... 8 2.6.2 Validity...........................................................................................8 2.7 Study Methodology Approach.................................................................9. 7KHRUHWLFDO%DVH. . 3.1 Total Market Value..................................................................................10 3.2 Intellectual Capital...................................................................................11 3.2.1 Human capital.................................................................................11 3.2.2 Structural capital.............................................................................12 3.2.3 Relational capital............................................................................12. 2UJDQLVDWLRQDO.QRZOHGJH. . 4.1 Knowledge............................................................................................... 13 4.2 Knowledge Acquisition Framework........................................................ 16 4.2.1 Knowledge acquisition................................................................... 16 4.2.2 Problem-solving style..................................................................... 16. +8.

(5) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. 4.2.3 Dissemination mode....................................................................... 17 4.2.4 Ownership type............................................................................... 17 4.2.5 Storage/Memory............................................................................. 17 4.3 Process of Organisational Knowledge Creation...................................... 18 4.3.1 Enlarging individual knowledge..................................................... 18 4.3.2 Sharing tacit knowledge..................................................................19 4.3.3 Conceptualisation............................................................................20 4.3.4 Crystallisation................................................................................. 20 4.3.5 Justification.....................................................................................20 4.3.6 Networking knowledge...................................................................21 4.3.7 Enabling conditions........................................................................ 21 4.4 Theoretical Summary...............................................................................22. (PSLULFDO6WXG\. . 5.1 Case Study Organisation......................................................................... 23 5.2 Knowledge Acquisition........................................................................... 23 5.2.1 Focus............................................................................................... 23 5.2.2 Search..............................................................................................23 5.3 Problem-solving Style............................................................................. 24 5.3.1 Location.......................................................................................... 24 5.3.2 Procedures...................................................................................... 24 5.3.3 Activity........................................................................................... 25 5.3.4 Scope.............................................................................................. 25 5.4 Dissemination Mode................................................................................ 25 5.4.1 Process............................................................................................ 25 5.4.2 Breadth............................................................................................26 5.5 Ownership Type.......................................................................................26 5.5.1 Identity............................................................................................ 26 5.5.2 Resource..........................................................................................26 5.6 Storage/Memory...................................................................................... 27 5.6.1 Representation................................................................................ 27 5.6.2 Accessibility....................................................................................27. $QDO\VLV. . 6.1 Knowledge Acquisition Framework........................................................28 6.1.1 Knowledge acquisition................................................................... 28 6.1.2 Problem-solving style..................................................................... 28 6.1.3 Dissemination mode.......................................................................39 6.1.4 Ownership type............................................................................... 30 6.1.5 Storage/Memory............................................................................. 30 6.2 Process of Organisational Knowledge Creation...................................... 31 6.2.1 Enlarging individual knowledge..................................................... 31 6.2.2 Sharing tacit knowledge..................................................................31 6.2.3 Conceptualisation............................................................................32. 8.

(6) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. 6.2.4 Crystallisation................................................................................. 32 6.2.5 Justification.....................................................................................33 6.2.6 Networking knowledge.................................................................. 33 6.2.7 Enabling conditions........................................................................ 33. &RQFOXVLRQV. . 7.1 Knowledge Acquisition Framework........................................................34 7.2 Process of Organisational Knowledge Creation...................................... 34 7.3 Further Studies.........................................................................................35. 5HIHUHQFHV. . $SSHQGL[. . Appendix 1 Interview Guide............................................................................... 39. 8+.

(7) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. /LVWRI)LJXUHVDQG7DEOH Figure 2.1 Figure 3.1 Figure 4.1 Figure 4.2 Figure 6.1 Figure 6.2 Figure 6.3 Figure 6.4 Figure 6.5 Figure 6.6 Figure 6.7 Figure 6.8 Figure 6.9 Figure 6.10 Figure 6.11 Figure 6.12. Study methodology approach............................................................. ..9 Total market value.............................................................................. 10 From data to wisdom.......................................................................... 13 Organisational knowledge creation process....................................... 16 Knowledge acquisition, focus.............................................................29 Knowledge acquisition, search........................................................... 29 Problem-solving style, location.......................................................... 29 Problem-solving style, procedure....................................................... 30 Problem-solving style, activity........................................................... 30 Problem-solving style, scope..............................................................30 Dissemination, process....................................................................... 30 Dissemination, breadth....................................................................... 30 Ownership type, identity.....................................................................31 Ownership type, resource................................................................... 31 Storage/Memory, representation........................................................ 31 Storage/Memory, accessibility........................................................... 31. Table 4.1. Framework for assessing a company’s approach to knowledge management........................................................................................14. 8++.

(8) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. 8+++.

(9) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. ,QWURGXFWLRQ This, the first chapter of the thesis, will through a problem discussion introduce the reader to the subject as well as formulate a purpose for the continuation of the work. At the end a disposition of the study will be presented. %DFNJURXQG In 1768, the British and Dutch shipyards and ceramics factories were far more productive than the Swedish counterparts even though their essential machinery were similar. A Swede named J. Westerman undertook an investigation to figure out the reason why this was the case. He found that it was not the fixed assets that gave the British and Dutch their advantages, but the intelligence with which the machines were employed. (Stewart, 1997b) During the Industrial Age the main sources of wealth were physical. Traded were things that you could see, touch, and smell. Land, natural resources, together with human- and machine labour were the factors creating wealth. In order to develop and manage those resources, the business organisations of that era were primary design to attract financial capital. (Stewart, 1997b) Since the beginning of this century, machines have taken over the tasks that muscles once performed, which brought about a change in labour needed to produce an additional unit of manufacturing output, decreasing with one percent a year. After World War II, the amount of raw material and energy needed in the manufacturing process also began to fall with approximately the same rate. In their place knowledge has evolved. A sign of this is that since the turn of the century, the number of educated workers in companies has risen at the same pace, i.e. with an annual rate of one percent. (Stewart, 1997b). In this new era, knowledge and information have become the organisations primary raw material and perhaps its most important resource. Today, the capital assets needed to create wealth are not only land, natural resources or human and machine labour, but to a larger extent knowledge assets. (Von Krogh and Roos, 1996) 3UREOHP'LVFXVVLRQ According to Michael Porter, the competitive health of a company is a function of the strength, energy, competence of its suppliers, customers, and current competitors, as well as potential competitors (Edvinsson and Malone, 1997). Important to note is that none of these factors are readily transferable to the balance sheet. This means that the traditional accounting model, based upon almost solely financial performance, are not as applicable to the presentation of the company’s real value and may, according to Bontis (1996) and Edvinsson and Malone (1997), even retard the company’s ability to maintain its competitiveness in a dynamic environment. The market value of today’s businesses often exceed their booked value, showing that a company’s real value is determined by other factors than mere financial (Bontis, 1996). New industry leaders recognise that the firm’s competitive strength lay less and less with the. .

(10) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. traditional accounting assets, but rather in another, more intangible kind of asset, the intellectual capital (Edvinsson and Malone, 1997; Parker, 1998). Intellectual capital may be new in theory, but in practice it has been around for many years. Historically it has been referred to as goodwill, making up the difference between the firm’s market value and booked value. Traditionally it has been assumed that this gap was an entirely subjective one and that it in due time would manifest itself in some form that could be measured by traditional means. But recent history has shown that this is not the case. Investments in either human capital or information technology appear as positive values in traditional accounting. Thus, if a company invest in such things that probably will makes it more competitive, it will suffer a short-term decrease in its profit and loss statement. Which, as a consequence, will reduce the value of the balance sheet and thereby reduce the book value of the organisation. (Edvinsson and Malone, 1997) Organisations, in order to stay competitive, need to understand, control and develop their intellectual capital. The intellectual capital is to a large extent the knowledge and competence of the employees, their commitment in assignments, and their collaboration with other colleagues and customers (Stewart, 1997b). In other words, intellectual capital consists of both human capital and relational capital. The problem lay within the nature of intellectual capital. In contrast to financial capital, it is not owned by the organisation, and further, large parts of it are invisible and therefore much more difficult to identify, develop and measure (Stewart, 1997a). During the 1980’s, downsizing was an often-adopted strategy in order to reduce overhead and increase profits (Bassi, 1997). Problems occurred however when employees left the organisation, taking the intellectual capital they had accumulated through the years with them, and thereby often the clients as well (Edvinsson and Sullivan, 1996). Vital information that, when disappearing, incurs re-investment needs in new information, often proving to be extremely costly both in short monetary terms, as well as long-term with a decreased, or even vanished, competitive advantage. In order to avoid this waste of valuable resources, organisations should try to capture the knowledge residing in the minds of their employees. For instant, parts of the intellectual capital can be kept by organisations in structural capital, making up the third part of intellectual capital, things like patents, routines, and databases, and parts of it can be verbally disseminated throughout the organisation. (Edvinsson and Sullivan, 1996) Over time, as the competitive nature of the firm has changed, a need for different views and outlooks have risen, manifesting itself in a new knowledge perspective. Here, the employees within an organisation are considered to be the primary sources of revenue generation, and information a resource to be mined, facilitating communication and knowledge transfer. Customer relations are essential and should be performed interactively; a two-way exchange of needs stated and needs met. The existence of bottlenecks is the result of mismanagement of time and knowledge, creating inefficiency within the process. (Brown, 1998) Knowledge acquired through experience does however not always get reused and might not be shared in a formal way within the organisation. In order to avoid remaking mistakes, to assure the reuse of proven best practices, or simply to capture what employees have learned about suppliers, customers or competitors, knowledge management is designed. Knowledge management is the concept under which information is turned into actionable knowledge and made available in a usable form to the people who can apply it. (Angus HWDO, 1998) .

(11) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. When applying knowledge management many companies have discovered that sharing information within the firm creates new business opportunities and increases employee retention. Knowledge management is about understanding the intellectual capital. It is about managing skills within the organisation and introduce new trails through the organisation. Only then is it possible to optimise the organisation’s performances to meet the next millennium’s business challenge. (Greengard, 1998) Given the importance of knowledge management in today’s business life several questions arise. Are the organisations aware of the importance of knowledge management and if so how do they manage it? How can an organisation create knowledge more effectively? 3XUSRVH The purpose of this study is to describe how an organisation acquires, share and retain knowledge. Further, we will describe and analyse how knowledge can be created within the organisation. 'HOLPLWDWLRQ The issue to be described and analysed, as stated in the purpose above, will be dealt with from an organisational perspective through established models. The aim of this study is to fulfil the above stated purpose within present times, not exploring the past or future in particular. The knowledge concept in our study regards skills and knowhow, which is defined as the capability to know what to do in a particular situation in order to achieve a goal (Norrman and Wikström 1994). Knowledge management and theories about knowledge may in the literature be close connected with learning. By the same reasoning the concept of knowledge management is also closely interconnected with organisational culture. However, we have in this study excluded any discussions about learning and culture per se.. .

(12) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. 'LVSRVLWLRQ Here, the continuance of the study is laid out and described in order to prepare and introduce the reader to the fundamental disposition of this study. &KDSWHU WZR, methodology, contains a view of the essential methodology theories and the chosen positioning of this study, illustrated through the use of a flow chart. Furthermore it also contains descriptive aspects of the study’s course of action. &KDSWHU WKUHH DQG IRXU comprises the study’s theoretical base and describes in detail the applicable theories to current date. Chapter three will give an introduction to the basic concepts of intellectual capital and knowledge management to facilitate the reader with the necessary cognisance of the subject. This in order to create the theoretical frame for chapter four in which a more in-depth approach is taken towards acquiring, retaining and sharing knowledge, as well as how the knowledge can be extended. &KDSWHUILYH encompasses the empirical findings from the undertaken interviews at the case study company. The chapter also includes a descriptive picture of the company. &KDSWHUVL[ combines the empirical findings with the previously presented theoretical frame of reference in an analysis. &KDSWHUVHYHQ will present the conclusions of the findings and also give suggestions to further studies within this area of study.. .

(13) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. 0HWKRGRORJ\ ,Q WKLV FKDSWHU ZH ZLOO GLVFXVV WKH VFLHQWLILF SRVLWLRQLQJ DQG VWXG\ DSSURDFK WDNHQ LQ WKH VWXG\ IROORZHG E\ D GHVFULSWLRQ RI KRZ WKH OLWHUDWXUH VWXG\ ZDV FDUULHG RXW DQG FKRVHQ PHWKRGVIRUWKHGDWDFROOHFWLRQ)LQDOO\WKHPHWKRGSUREOHPVWKDWPLJKWRFFXULQWKLVNLQGRI VWXG\DUHGLVFXVVHG 6WXG\6WUDWHJ\ There are many different ways of approaching a problem and there are several study strategies available. When relating a strategy to how well structured the problem area is, there are three existing views: explorative, descriptive and explanatory (Zikmund, 1994). Since the problem we aimed to solve in the study was rather well structured, we knew what to look for but we did not intend to identify any cause and effect relations, a descriptive strategy was therefore selected. Furthermore, our purpose with the study was to describe and analyse how an organisation manages their knowledge, also making a descriptive strategy appropriate. 6FLHQWLILF3RVLWLRQLQJ Our study has mainly a hermeneutic scientific position since a lot of the individual’s knowledge is deeply rooted in their actions, experiences, values and emotions, so called tacit knowledge. This kind of knowledge is very difficult to measure in a meaningful way, making a positivistic scientific positioning rather inadequate. Furthermore, since the purpose was to achieve an understanding of a problem by describing and analysing an organisation’s reality, the hermeneutic view was more appropriate to take because this position gave a more comprehensive and an in-depth understanding of the problem (Widersheim-Paul and Eriksson, 1991). Moreover, Wiedersheim-Paul and Eriksson (1991) suggest that the hermeneutic study approach often is carried out with various qualitative methods, such as case studies (2.3). The choice of scientific positioning depends to a great extend on the relation between theory and practice. In our study we emanated from existing theories regarding knowledge and knowledge management. Since our intentions were to make observations on a chosen organisation and test appropriate theories about knowledge and knowledge management in order to describe and analyse its reality, the deductive perspective was an appropriate positioning. (Wiedersheim-Paul and Eriksson, 1991) Taking the actor perspective gave us an opportunity to obtain a deeper understanding and a more holistic view over the reality within the organisation studied. This was possible to achieve through the close relation between actors and interviewers thanks to the subjectsubject relationship (Holme and Solvang, 1991). The aim with our study was not to receive an objective and absolute truth, but an increased understanding of a problem area, making the actor perspective suitable. In this study we tried to make ourselves acquainted with the situation in order describe how the members of an organisation apprehend the handling of knowledge, i.e. how they acquire, retain and share knowledge within the organisation.. .

(14) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. According to Holme and Solvang (1991) a qualitative approach is characterised by closeness to the research objects and is commonly used when the purpose is to explore feelings, values and attitudes. Taking this approach made it possible to get abundant and in-depth information regarding the study object. It was important that the result of the study was based upon the respondents’ own opinions, such that cannot be quantified in a meaningful way. Indeed, a quality approach also gave us an opportunity to find categories, descriptions and models that best could describe the situation (ibid). 6WXG\$SSURDFK As a foundation for our empirical study we have chosen a case study method. This was made according to three important characteristics of the case study approach; an emphasis on the actor, studies of historical lapse, and finally an ability to communicate the reality. Our intentions were to find in-depth information regarding the reality within an organisation, in order to achieve a more holistic view (2.2) of the situation (Wiedersheim-Paul and Eriksson, 1991). The case study approach made it possible for us to get a better communication and relation with the respondents, which were important considering the purpose with this study. In this study we have chosen a single study object. This with the intention to receive the kind of in-depth information we needed in order to achieve our purpose with the study. The organisation chosen, an actor within the multinational manufacturing industry, remained positive to undertake this kind of study. However, due to the possibility that sensitive information might appeared in the study, the organisation wished to remain anonymous. According to this desire we, together with our supervisor, entered a confidential agreement with the company, promising not to disclose their identity nor any sensitive information. The data for the case study was obtained from in-depth interviews with a number of people in the organisation. The principal of the organisation, in co-operation with us, selected the respondents for the interviews. Thirteen employees were asked if they had the possibility to participate in the study and six of them were able to do so. The respondents were rather well dispersed in the organisation and covered its two product areas. By obtaining the respondents apprehensions about the situation in the organisation, we wished to achieve a comprehensive description of the organisation’s ability to manage the knowledge. A couple of days before the interviews we sent the respondents an interview guide, making them more prepared and familiar with the studied area. The interview guide is attached the study (appendix one). 0HWKRGVRI'DWD&ROOHFWLRQ The main method of data collection used in this study is primary data collection (Lekwall and Wahlbin, 1993). We have accomplished personal interviews with an open-ended character with no answer alternatives because we did not want to influence the results. This way of carrying out the interviews gave the respondents an opportunity to use their own words when describing their knowledge and how they experienced the situation in the organisation (Wiedersheim-Paul and Eriksson, 1991).. .

(15) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. All interviews were taped in order to improve objectivity and correctness. However, according to the scientific approach taken in this study, it was important that we as researchers remained objective in our interpretations of the respondents’ answers. All interviews were carried out in person at the case studied company. The identities of the interviewees are kept confidential by referring to each of them as a single capital letter. Secondary data is favourable because it can be obtained quickly and at low cost (Lekwall and Wahlbin, 1993). The secondary data used in this research is mainly the company’s annual reports and its homepage on the Internet, which made us familiar with the firm studied. In addition, we have read several publicly available reports, mainly found in journals, the library’s CD-ROM system and on the Internet, almost all related to the case study company and the topic in general. /LWHUDWXUH6WXG\ In order to obtain certain knowledge about the subject to investigate and to find a frame of reference, a literature study was a natural and essential ingredient in the research process. It brought us to the level of knowledge that made us able to sort out relevant information and to find different approaches to the problem. Different theories and thinking regarding intellectual capital, knowledge and knowledge management were gathered through books and research publications. The literature study was mainly carried out through the library at Luleå University of Technology, using available databases such as Bibdia, Libris, ABI-inform, Artikelsök and Litteratursök. Keywords used in the search process were intellectual capital, human capital, structural capital, relational capital, customer capital, and knowledge, as well as knowledge management. Moreover, we have also used the references in books and articles in order to find further, appropriate literature. An additional search has been made using the Internet and various web pages. The literature finally used in this study has been selected through a subjective judgement approach out of all the literature found during the literature study process. 0HWKRG3UREOHPV According to Wiedersheim-Paul and Eriksson (1991) there are two common measurement problems that the researchers need to consider when determining if the study has been successful or not. These are reliability and validity. Reliability is the degree of accuracy of the collected data, i.e. if the study is repeated, the identical results would emerge (Bell, 1987). Validity is concerned with if the researchers have studied what they intended to do and nothing else (Thurén, 1991).. .

(16) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. 2.6.1 Reliability When using interviews to collect primary data, factors like the respondent’s health and tiredness and distracting surroundings may influence the result. These factors, affecting the study’s reliability, however are outside the researcher’s control (Gummesson, 1988). We let the respondents know of the content of the interview, through an interview guide (appendix one), as well as reserved a time for the interview in advance. By using an interview guide during the interviews we have tried to avoid the so-called “interview-effect” i.e. when the interviewer consciously or unconsciously influence the respondents by asking leading and subjective questions (Lekwall and Wahlbin, 1993). The interview guide was also tested before the real respondents received it, in order to be sure that it could be properly understood. Furthermore, during the interview we took notes as well as using a tape-recorder in order to be able to consider all details that appeared during the interviews afterwards. In order to improve the reliability in our study further we have been very cautious not to bring in our subjective opinions in the work. 2.6.2 Validity An important factor when determining the validity of the study is whether the theories used is relevant according to the purpose of the study (Wiedersheim-Paul and Eriksson, 1991). In the beginning of the study process we made a thorough literature study in order to find the most appropriate theories. However, we are not able to exclude the possibility that there might exist other theories more suitable for our study. Another important factor, regarding the validity, is whether the persons interviewed were the ones possessing the most accurate and valuable information for this study (Gummesson, 1993). The respondents in our study were all recommended by our principal in the studied organisation, therefore, we assume that we have found the appropriate persons for the interviews. In addition, we prepared the respondents on what the interviews were going to be about, by in advance sending them information about the study area as well as an interview guide. However, due to circumstances outside of our control seven prospective interviewees at the case study organisation were not able to participate in the interviews. To be satisfied we had wished for at least two more interviews, with the director and a product manager for production group. By having these interviews we would have covered all levels in the organisation in both product areas. The foundation for the result of this study may subsequently be somewhat weak in the context of achieving a satisfactory validity in the study. A factor that also might cause concern is that certain information needed for the study might have been too sensitive for the respondents to give us. Besides entering a confidential agreement with the company, we also promised the respondents not to disclose their names to anyone, which is the reason why the interviewees are presented as A, B, C, D, E and F in the empirical study, as mentioned earlier.. .

(17) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. 6WXG\0HWKRGRORJ\$SSURDFK The model below, figure 2.1, describes the study methodology approach taken for the realisation of this study. The choices made are indicated by grey colour.. 6WXG\6WUDWHJ\. Explorative. 6FLHQWLILF 3RVLWLRQLQJ. Descriptive. Hermeneutic. Actor. Explanatory. Positivistic. Analytical. System. Qualitative. Quantitative. Deductive. Inductive. 6WXG\ $SSURDFK. Survey. Case Study. 0HWKRGIRU'DWD &ROOHFWLRQ. Primary. Secondary. Questionnaire Figure 2.1 Study methodology approach (Own compilation).. . Observation. Depth Interview.

(18) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. 7KHRUHWLFDO%DVH 7KLVWKLUGFKDSWHURIWKHWKHVLVHQFRPSDVVDQLQWURGXFWLRQWRWKHWKHRUHWLFDOIUDPHZRUNZKLFK FRQWLQXRVLQFKDSWHUIRXULQWURGXFLQJLQWHOOHFWXDOFDSLWDODQGLWVGLIIHUHQWFRPSRQHQWVWRWKH UHDGHU&KDSWHUWKUHHZLOOSUHVHQWWKHIUDPHRIUHIHUHQFHZLWKLQZKLFKLQWHOOHFWXDOFDSLWDOLV IRXQG QDPHO\ WRWDO PDUNHW YDOXH WKLV HQDEOLQJ WKH UHDGHU WR EHWWHU XQGHUVWDQG WKH EDFNJURXQGDQGFRQWH[WRILQWHOOHFWXDOFDSLWDO 7RWDO0DUNHW9DOXH The total market value of a company is made up, according to figure 3.1, of two different parts, financial- and intellectual capital. The former being affected only by the bottom-line, focusing exclusively on historic facts (Kam, 1990). The latter, and the focus of this study, intellectual capital is described more thoroughly in 3.2 were the three parts of intellectual capital will be further described. 7RWDO0DUNHW 9DOXH. ,QWHOOHFWXDO&DSLWDO. Financial Capital. Human Capital. Structural Capital. Relational Capital. Organisational Capital Customers Process Capital Competitors Innovation Capital. Suppliers. Market channels. Associations Research and Development Public policy Patents and Trademarks. .

(19) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. Figure 3.1 Total market value (Edvinsson, 1998; Saint-Onge, 1996; own compilation).. ,QWHOOHFWXDO&DSLWDO. The importance of intellectual capital within the organisation has been more or less evident, depending upon the nature of the firm, for several decades (Edvinsson, 1997). However, intellectual capital as a term was first introduced during the 1960’s and the conceptualisation processdid not start until the early 1990’s (Jones and Jordan, 1998). Even so, there are several different frames of references concerning intellectual capital. For the purpose of this thesis intellectual capital is defined as: ³NQRZOHGJHWKDWFDQEHFRQYHUWHGLQWRYDOXH´ (Edvinsson and Sullivan, 1996, p. 358

(20). This definition is very broad (Edvinsson and Sullivan, 1996) and it suggests that the management of knowledge is the process that will create intellectual capital and a higher value for an organisation (Bassi, 1997). Intellectual capital in turn is made up of three parts, figure 3.1, namely, human capital, structural capital and relational capital (Edvinsson, 1998; Stewart, 1998; Saint-Onge, 1996). However, intellectual capital is not created from separate pools of human-, structural- or relational capital, but rather from the interaction and interplay among them (Stewart, 1998). 3.2.1 Human capital Human capital is the collective capability of the firm to extract and deduce the best possible solutions from the knowledge of its employees, it is particularly important as a source of innovation and strategic renewal (Bontis, 1996). During the era of Taylorized workplaces, the full potential of human assets were not realised. The company only recognised the physical effort from their employees and did not benefit from their minds. In the Information Age however, it is difficult to remain competitive without utilising the human capital effectively. The issue for organisations today is rather how to acquire human capital to the extent that is needed to enable the desired growth-rate. Human capital grows in two ways. First, when an organisation uses more of what people know, and secondly, when more people know more than is useful to the organisation. To use more of what people know, companies must create opportunities for private knowledge to be made public and tacit knowledge to be made explicit. (Stewart, 1995) People can be hired, but not owned. Valuable knowledge, hard to replace, is the key to attaining competitive advantage (Bassi, 1997). This knowledge is forged in communities of practice, but these communities and the human capital they create are no respecters of shareholder value. The challenge for the leaders, then, is how human capital can be turned to proprietary advantage. A paradox of the Information Age organisation is that at the same time that employers have weakened job security and loyalty to their employees, they are more than ever depended on human capital. Compounding to the problem is the fact that the most valuable knowledge workers are also the ones best able to leave their employers, taking their talent and network with them. (Stewart, 1995) Gaining access to the power of a firm’s human capital often means knowing what piece of information or knowledge is relevant, which .

(21) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. employee has it, and the speed with which the knowledge can be shared. (Edvinsson and Sullivan, 1996) 3.2.2 Structural capital Structural capital is the infrastructure that firms develop to commercialise their human capital. It provides the environment to create and leverage knowledge (Edvinsson and Sullivan, 1996) and the firm’s organisational capabilities to meet the market requirements. Structural capital supports, through routines and structures, the individuals’, within the organisation, quest for optimum individual, and thereby, overall business performance (Bontis, 1996). Some of what comes into the category of structural capital is entitled to legal rights of ownership; technologies, inventions, data, publications, and processes that can be patented, copyrighted, or shielded by trade-secret laws. Further, among the elements of structural capital are also strategy and culture, structures and systems, organisational routines and procedures, assets that are often far more extensive and valuable than the codified ones. It is the job of management to build corporate assets. (Stewart, 1995) Systematic management of intellectual capital creates growth in shareholder value. This is accomplished, among other things, through the continuous recycling and creative utilisation of shared knowledge and experience. This, in turn, requires the structuring and storing of competencies with the help of technology, process descriptions, manuals, and networks, to ensure that the competence will remain within the company when the employees go home at the end of the day, or leave their employment. Once stored, these become a part of the company’s structural capital, i.e. by structuring intellectual assets together with information systems enables the creation of organisational knowledge from an individual knowledge and know-how base. The structural capital creates a condition for rapid sharing of knowledge and sustained, collective knowledge growth. In addition, through structured, easily accessible and intelligent work processes, human capital will also be more productive. (Bontis, 1996) Organisational capital as part of the structured capital is the systems and competencies to handle and retain the innovation ability and value creating processes within the organisation. The innovation creating capital in turn consists of the organisational structure for research and development, as well as of patents and trademarks. (Edvinsson, 1998) 3.2.3 Relational capital The last part of intellectual capital is relational capital, which refers to the networks and relationships of the organisation and in particular their satisfaction with, and loyalty to, the company, i.e. it is the value of an organisation’s relationships with the parties with whom it conducts business. Even though it is not the most tangible of intellectual capital parts, it is the one, which most easily can be perceived as creating value for the company. (Bontis, 1996; Stewart, 1998) Relational capital include suppliers, market channels and associations, as well as public policy, i.e. it is to a large extent made up of the interested parties connected to the firm (Bontis, 1996). It is in the interaction with their participants that the company can turn intellectual capital into monetary returns. Shared knowledge, especially in regard to customers and suppliers is the ultimate form of relational capital (Stewart, 1998). Customer capital is essentially made up of the potential of the companies’ customers (affects company value), the type of relation that the company has with its customers (direct contact), and the customer base (risk distribution),. .

(22) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. as well as competitors and the competitive environment (risk and opportunity) (Edvinsson, 1998).. 2UJDQLVDWLRQDO.QRZOHGJH &KDSWHUIRXURIWKLVWKHVLVZLOOLOOXPLQDWHWKHNQRZOHGJHFRQFHSW)XUWKHUPRUHLWZLOOEXLOG WKHWKHRUHWLFDOIUDPHZRUNWRHQDEOHWKHGHVFULSWLRQRIWKHGRPLQDQWNQRZOHGJHPRGHVZLWKLQ DQRUJDQLVDWLRQDVZHOODVDWKHRU\RIRUJDQLVDWLRQDOFUHDWLRQRINQRZOHGJH&KDSWHUZLOO FUHDWH D WUDQVLWLRQ EHWZHHQ FKDSWHU WKUHH DQG IRXU DQG OLNH FKDSWHU WKUHH PDNH XS WKH IRXQGDWLRQRIWKHWKHRUHWLFDOIUDPHZRUNIRUWKHUHDGHU .QRZOHGJH Despite what the post-industrial society seem to imply, knowledge is, in the current debate, not a homogenous and clearly defined concept (Norrman and Wikström 1994; Sveiby, 1995). In the research, many distinctions of knowledge have been made. These distinctions may be important in order to achieve a common comprehension of the knowledge perspective (Norrman and Wikström 1994). Norrman and Wikström (1994) suggest that there are four different types of knowledge: information, skill or know-how, explanation and understanding. ,QIRUPDWLRQ is details about an event or situation in the past, present or the future, or scientific facts that cannot be questioned. It can be referred to as knowledge of an objective kind. Having a VNLOORUNQRZ KRZ means that a person knows what to do in a particular situation in order to achieve a specific goal. Thus unlike information, skill or know-how is embedded in the individual and require some form of action. ([SODQDWLRQ is concerned with causal relationships and regularities and refers to traditional positivistic scientific knowledge. This kind of knowledge can be found in scientific articles and in textbooks and it helps us to solve problems. Finally, XQGHUVWDQGLQJ is the kind of knowledge that first arises when we recognise connections and principles. Therefore, it is also embedded in the individual. (ibid) Sveiby (1995) derives the word knowledge etymology and receives two different meanings. The first is knowledge in the sense of DELOLW\, a meaning which is a more active form of knowledge while the second concerns NQRZLQJ and is more passive in the knowledge sense. Norrman and Wikström’s (1994) definitions of information and explanation can be viewed as knowing while skills and understanding is close to Sveiby’s (1995) ability. One step in order to achieve a better understanding of the nature of knowledge is to categorise it (Roos and Roos, 1997). The most frequently used distinction today is tacit versus explicit knowledge. This distinction, suggested by Polanyi (1966), and later exploited by many other authors in the strategic management, recently Nonaka and Takeuchi (1995) is indeed a fundamental one. Explicit or codified knowledge is knowledge that is definable and quite easily can be written down, transferred, and shared. It can be protected by the legal system, as trade-secrets, patents or copyrights. If not protected by international property law, explicit knowledge can be easy for competitors to imitate (Edvinsson and Sullivan, 1996). Polanyi (1966) refers explicit knowledge to knowledge that is transmittable in a formal and systematic language.. .

(23) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. However, the greater level of knowledge in an organisation is tacit (Saint-Onge, 1996). Tacit knowledge is in the head of the members of the organisation. It includes the intuition, perspectives, beliefs, and values that people form as a result of their experiences and use in their work, but cannot be described in any document (Stewart, 1997b). According to Polanyi (1966), tacit knowledge is deeply rooted in action, commitment and involvement in a specific context. Because of this, tacit knowledge has a personal quality, which makes it very difficult to formalise and communicate (ibid). While Polanyi describes tacit knowledge in a philosophical context, Nonaka (1994) has expanded his ideas in a more practical direction. He suggests that tacit knowledge involve both cognitive and technical elements. The cognitive component refers to individuals’ perception of the reality, i.e. how something ought to be. Out of these images, people form working models of the world by creating and manipulating analogies in their minds. Technical elements, on the other hand, covers concrete know-how and skills that apply to a specific context. (Nonaka, 1994) According to Edvinsson and Sullivan (1996) the distinction between explicit and tacit knowledge is strategically very important. However, it is not the knowledge of the organisation’s members per se which is of critical strategic importance, it is the firm’s productivity in building, integrating and utilising its intellectual capital that is vital (ibid). Many researchers have recently indicated that the industrial society is undergoing a transformation into an informational society (Edvinsson and Sullivan, 1997; Stewart, 1997b; Von Krogh and Roos, 1996). Today it is information that to a larger extent is being manufactured, bought and sold (Norrman and Wikström, 1994). With this development, there is a danger that the emphasis on information will lead to that all knowledge is regarded as information (Davenport HWDO, 1998; Pascarella, 1997). Nonaka (1994) wrote that the term knowledge and information are often used interchangeably, although there are a clear distinction between them. Machlup (1983) define information as a flow of messages or meanings that might add to, restructure or change knowledge. This is in line with Nonaka (1994), who makes the distinction that information is a flow of messages, while knowledge is created and organised by the flow of information, based on the commitment and beliefs of its holder. Furthermore, Sveiby (1995) suggests that the information in itself is meaningless. It is the receiver of information that gives the information meaning and value. Essential is the capability for the receiver to produce something valuable with the information acquired. In order for others to use the information one has to practice, test and make reflections over it (ibid). As stated in the definition of intellectual capital, it is knowledge that can be converted into value (Edvinsson and Sullivan, 1996). The goal for knowledge management is to use knowledge more effectively and hence improve the organisation’s capability to create a greater value (Edvinsson, 1997).. .

(24) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. Saint-Onge (1996) means that in order to create value in intellectual capital, the essential is to understand how knowledge is created and how people and organisations learn to use it wisely. ([SOLFLW. . '$7$ Dispersed elements. ,1)250$7,21. 'HSWK RI PHDQLQJ. 6RXUFH RI LQWHUSUHWDWLRQ. Patterned data. .12:/('*( Validated platform for action. :,6'20 Implicitly knowing how to generate access and integrate knowledge. . 7DFLW. Figure 4.1 From data to wisdom (Saint-Onge ,1996, p. 12). Figure 4.1 geographically displays the process of how data can be converted to wisdom. Saint-Onge (1996) means that, in accordance with Sveiby (1995), data frequently arrives to individuals as dispersed elements, but it is first when we are able to put this data into a meaningful pattern that we get information. As in accordance to Machlup (1983) and Nonaka (1994), knowledge is achieved when we convert the information into a valid basis for action. In order to achieve wisdom we must implicitly know how to generate and access knowledge as a guide for action. As people and organisations move from data to wisdom, the depth of meaning increases and the source of interpretation shifts from being highly explicit at the data stage to more tacit at the stage of wisdom.. .

(25) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. .QRZOHGJH$FTXLVLWLRQ)UDPHZRUN Jones and Jordan (1997; 1998) have developed a framework that can be used to describe the dominant knowledge modes within an organisation. The framework consists of five categories: knowledge acquisition, problem solving, dissemination, ownership and memory, table 4.1. .QRZOHGJHDFTXLVLWLRQ $FTXLUH

(26) Focus: Search: 3UREOHPVROYLQJVW\OH Location: Procedures: Activity: Scope: 'LVVHPLQDWLRQPRGH 6KDUH

(27) Processes: Breadth: Ownership type Identity: Resource: 6WRUDJH0HPRU\ 5HWDLQ

(28) Representation: Accessibility:. internal opportunistic. external focused. individual trial and error experimental incremental. team heuristics abstract radical. informal narrow. formal wide. personal specialist. collective generalist. tacit high. explicit low. Table 4.1 Framework for assessing a company’s approach to knowledge management (Jones and Jordan 1997; 1998). 4.2.1 Knowledge acquisition The knowledge acquisition category consists of two dimensions that are labelled focus and search. The IRFXVGLPHQVLRQ refers to whether employees’ look for knowledge from internal sources, like internal documents, databases and in discussions with the colleagues, or from external sources, like conscious scanning of the environment, i.e. benchmarking and through collaborations with customers, suppliers and other participants. The VHDUFK GLPHQVLRQ deals with whether knowledge is acquired by a deliberate and targeted search for a specific item or type of knowledge, or if the knowledge is acquired in a more opportunistic way. The latter can be seen as a random accumulation of knowledge that may not be useable immediately, but may later on provide a solution to a problem or concern. (Jones and Jordan, 1997; 1998) 4.2.2 Problem-solving style Regarding the problem-solving category, four dimensions have been identified, namely, location, procedures, activity and scope. The ORFDWLRQ GLPHQVLRQ indicates whether the primary problem-solving unit is at the individual or team level. In some organisations experts solve new problems as they emerge and in this way the area of the expertise is not duplicated. However, in other organisations problems are foremost solved by co-operation between two or more individuals. (Jones and Jordan, 1997; 1998). .

(29) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. The SURFHGXUH GLPHQVLRQ refers to whether problem-solving involves a trial-and-error approach or if the organisation prefers to use better-developed standardised, heuristic methods to solve new problems. TheDFWLYLW\GLPHQVLRQ is about whether problem-solving is dominated by an experiential learning activity where members of an organisation are able to work with problems in a hands-on-way, or if the problem solving is characterised by a more abstract cerebral approach with help of computational programmes. Finally, the VFRSH GLPHQVLRQ refers to whether the organisation is focus on seeking solutions of a radical nature or if it prefers less dramatically, incremental solutions. (Jones and Jordan, 1997; 1998) 4.2.3 Dissemination mode The dissemination category consists of two dimensions, processes and breadth, concerned with knowledge sharing. The SURFHVV GLPHQVLRQ is about whether knowledge is shared primarily through formal routines like databases, meetings and documents or by more informal processes through chatting during coffee and lunch breaks or in the corridor. The EUHDGWKGLPHQVLRQ of knowledge sharing can be either across a wide range of employees or knowledge may be shared only on a narrow basis. (Jones and Jordan, 1997; 1998) 4.2.4 Ownership type Regarding ownership there are two separate dimensions, emotional ownership, called identity, and resource ownership, labelled the resource dimension. TheLGHQWLW\GLPHQVLRQ refers to the extent, to which the individual perceives their knowledge base as being part of their own personal identity or if the knowledge needed belongs to the organisation, collectively. The UHVRXUFHGLPHQVLRQ of ownership deals with the way in which knowledge is dispersed in the organisation, i.e. if the knowledge primarily belongs to an expert, specialist, within the organisation or if many individuals overlap the knowledge, i.e. a generalist mode. (Jones and Jordan, 1997; 1998) 4.2.5 Storage/Memory The last category, storage/memory, refers to the orientation adopted within the company for storing knowledge. It consists of two dimensions, representation and accessibility. The UHSUHVHQWDWLRQGLPHQVLRQ refers to whether knowledge is chiefly held explicitly, in the form of databases, documents and alike, or tacitly, i.e. in the heads of employees. TheDFFHVVLELOLW\ GLPHQVLRQ deals with whether the members of an organisation perceive that they have a high or low access to the knowledge base. (Jones and Jordan, 1997; 1998). .

(30) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. 3URFHVVRI2UJDQLVDWLRQDO.QRZOHGJH&UHDWLRQ While Jones and Jordan’s (1997; 1998) framework helps to describe the dominant knowledge modes within an organisation, Nonaka (1994) has developed a theoretical model constructed for the process of organisational knowledge creation, enabling individual knowledge to be enlarged, shared and justified. Social interaction between individuals in the organisation has an essential role in this process. Another important factor is the capacity to transform essential knowledge into some concrete form. Finally, the process needs to be managed in an appropriate way in order to be successful. (ibid). (QDEOLQJFRQGLWLRQV Chaos / Fluctuation Redundancy Middle-up-down mgt Hypertext organisation. Conceptualisation. Enlarging individuals knowledge. Sharing tacit knowledge. Justification. Networking knowledge. Crystallisation. Figure 4.2 Organisational knowledge creation process (Nonaka, 1994, p. 27; own compilation).. 4.3.1 Enlarging individual knowledge Through direct experience, individuals accumulate tacit knowledge. The quality of the knowledge might however be questioned. Because routine tasks often reduce creative thinking and the formation of new knowledge, variety is an important factor in order to obtain knowledge of high quality. However, if various experiences are completely unrelated, there is a major risk that individuals do not integrate them in order to create new perspectives. Therefore, variety is not sufficient. (Nonaka, 1994) A second factor that induces the quality of knowledge is that the individuals have a deep personal commitment and bodily experience (Nonaka, 1994). Yuasa (1987) states that true knowledge cannot be obtained only by theoretical thinking, instead it is through bodily recognition or realisation that individuals learn and new knowledge is created. .

(31) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. Regarding explicit knowledge, a dominant approach in the western culture is knowledge of rationality. It emphasis an individual’s ability to reflect on what she experiences. It is through the interaction between experience and rationality that individual knowledge is enlarged and that enables the creation of individual perspectives of the world. (Nonaka, 1994) 4.3.2 Sharing tacit knowledge The mind of the organisation is created as individuals interact and trigger behaviour patterns with each other. Therefore, the enlarged knowledge, described in the section above, will not come to the organisation’s favour unless it is articulated and shared throughout the organisation by social interactions. (Nonaka, 1994) Pascarella (1997) also states that when people share knowledge, the group’s effectiveness and productivity increase. In order to bring personal knowledge into a social context, in which it can be amplified, it is necessary to provide a place where individuals can communicate and share their experiences. By encouraging co-operation and constructing formal teams, an organisation can facilitate these social interactions. These teams can be very advantageous. When trying to solve practical problems, for instance, they often generate links between people that may provide useful information as well as aiding the creation of mutual trust among members. Furthermore, within a team the individuals get an opportunity to exchange information and experiences that may facilitate knowledge creation (Nonaka, 1994). Brown (1998) asserts that one thing to do in order to create profit from the intellectual capital in the organisation is to create a cross section-team of workers and managers. This team will have far more insight than any single one person will. Drew (1996) agrees that new knowledge must be shared within a network, typically involving customers and suppliers. However, Drew (1996) suggests that one also has to be aware of the added risk in loss of control and potential competitive advantage in doing so. The key in order to acquire tacit knowledge is experience. Without personal experience it is almost impossible to share other individuals’ thinking processes. An important fact is that tacit knowledge can be acquired without a common language, but through observations, imitation and practice. In the organisational theory, socialisation is often interconnected with culture. (Nonaka, 1994) Many researchers emphasise the importance of a knowledge culture within the organisation. As an example, Greengard (1998) proclaims that incentives must exist in the form of compensation and rewards that encourage the sharing of knowledge. Hiser (1998) agrees and says that many organisations do not clearly articulate the importance of sharing knowledge, nor do they recognise individual knowledge contributions. As a result, Hiser (1996) argues that individuals often take the knowledge they possess for granted and may even refuse to share it because the incentives are not in place. However, according to Davenport HWDO (1998) a knowledge friendly culture is very difficult to create if it does not already exist, but it is one of the most important factors if an organisation is to be successful.. .

(32) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. 4.3.3 Conceptualisation Once mutual trust and a common tacit perspective have been formed through shared experiences, the team need to conceptualise these. Here, externalisation is the dominant mode of knowledge conversion. The externalisation process facilitates the translation of tacit knowledge into more comprehensible forms that can be understood by others. There are two key factors that support this process. First, tacit knowledge needs to be articulated and secondly, tacit knowledge of customers and experts has to be translated into understandable forms. (Nonaka, 1994) In the former process, dialogues are strongly supportive. The use of a figurative language such as metaphors, analogies and alike can be very helpful in order to encourage creative dialogues and to share experiences, especially at the early stage of the information creating process. In the process of translating tacit knowledge into understandable forms, the new perspectives that have been created from shared tacit knowledge can be conceptualised through abduction. While deduction and induction are oriented vertically in the processes, abduction is a horizontal extension of the processes. (Nonaka, 1994) Stewart (1997b) agrees with the opinion that tacit knowledge must be articulated and declares that tacit knowledge cannot be examined, improved, or shared unless it becomes explicit. “What’s unspoken must be said aloud.” (Stewart, 1997b, p. 74) 4.3.4 Crystallisation The knowledge created by individuals and teams has to be transferred into some concrete form such as a product or a system. This is called the crystallisation phase and the central mode of knowledge conversion here is internalisation. The internalisation process is when explicit knowledge is translated into tacit knowledge. It requires the individual to identify what kind of organisational knowledge is relevant. (Nonaka, 1994) Crystallisation is a social process that occurs at a collective level. It can be seen as the process where the organisation’s different departments are testing the usefulness and applicability of the concept created by the teams. In order for the individuals to access the knowledge of the entire organisation, learning-by-doing, training and exercises facilitates this process. The process seems to be more effective when redundancy of information is a foundation for critical knowledge conversion processes. Sometimes the crystallisation process can involve suppliers and customers in order to mobilise and to make environmental knowledge more visible. (Nonaka, 1994) However, there are researchers pointing at the risk of implementing procedures and systems that are too standardised. Jones and Jordan (1997) and Hedberg and Jönsson (1978) argue that for businesses in changing environments, standard procedures may introduce significant delays and improper responses into the organisation’s decision system due to discrepancy between the environment and systems. Too standardised systems might also hamper creative thinking, which may facilitate development and improvements (ibid). 4.3.5 Justification. .

(33) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. According to Stewart (1997b) and Nonaka (1994) the knowledge creation process can be seen as a never-ending cycle. First you need to identify tacit knowledge and then make it explicit so that it can be formalised, captured, and leveraged, and finally encourage the new knowledge to soak in and again become tacit (Stewart, 1997b). The process of justification determines the extent to which the knowledge created is really worthwhile for the organisation. In other words, it determines the quality of the created knowledge. The justification process often uses standards as a measure of quality. It is important though that the justification standards regularly are evaluated in terms of their consistency with other value-systems in the organisation. (Nonaka, 1994) 4.3.6 Networking knowledge When the organisation comes to this stage of the knowledge creation process, the concepts have been created, crystallised and justified. The task is to integrate this into the organisation’s knowledge base, which include a major network of organisational knowledge. Depending of what kind of new concepts and knowledge that emerged, the organisation must reorganise its existing knowledge base. This is achieved through a mutually induced process between the new concepts and the vision stated by the organisation. (Nonaka, 1994) 4.3.7 Enabling conditions Environmental fluctuations can be favourable in many aspects, they may increase individual commitment, and can also generate ”creative chaos” that might trigger the process of organisational knowledge creation. When an organisation is facing a real crisis, creative chaos is generated naturally. However, the organisation may also facilitate creative chaos of its own by for instants proposing challenging goals among the members. The creative chaos increases the tension within the organisation, which regain strength in order to solve the new problems and thereby may create new knowledge. Important to note is that this process requires that the members reflect on their actions, if not, environmental fluctuations tend to create ”destructive chaos”. (Nonaka, 1994) Redundancy, i.e. conscious overlapping of organisational information, business activities and management responsibilities, is a second principle for managing organisational knowledge creation. Redundant information means that there is more information in the organisation than each member immediately requires. This can be seen as a waste of resources. However, the sharing of overlapping information among members provide them with a sense of what others are trying to formulate. During the development stage, redundancy can be of particularly importance, since individuals can enter each other’s area of operation and give advice. Information from new and different perspectives can therefore be provided. (Nonaka, 1994) According to Nonaka (1994) the management model best suitable for promoting an efficient creation of knowledge in organisations is middle-up-down management. Unlike bottom-up and top-down management models, the middle-up-down model takes all members as important actors who work together both horizontally and vertically. The major characteristic of this model is the close collaboration between the top, middle, and lower managers. (ibid) However, they still have their separate responsibilities, top management articulate the vision, lower manager look at the reality, while the middle manager close the gap between these two forms of perspectives. In this way, this leadership style facilitates that the parallel knowledge. .

(34) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. creation process takes place simultaneously at top, middle, and lower levels in the organisation. (Nonaka, 1994) Greengard (1998) writes that it is essential to ensure that senior management understands the value of knowledge management and what it can offer to the organisation and its members. Furthermore, he argues that they must support the development of programs and policies to make it a reality and enabling knowledge management to play an active role in the decisionmaking process (ibid). The last important condition for knowledge creating organisations, according to Nonaka (1994), is to design a hypertext organisation. This means that the organisation has a strategic ability to continuously and repeatedly acquire, create, exploit, and accumulate new knowledge. First, the hypertext organisation-design distinguishes the knowledge created in normal routine operations conducted by a hierarchical formal organisation, from the knowledge created in self-organising teams. Essential to note is that the design of the hierarchy and self-organising teams should make it possible for the organisation to efficiently and effectively shift between these forms of knowledge creation. (Nonaka, 1994) 7KHRUHWLFDO6XPPDU\ Chapter three and the introduction of chapter four (4.1) form an overture for the continuing theoretical framework with a presentation of intellectual capital and its parts, as well as of the knowledge concept, in order to achieve a common comprehension of the knowledge perspective. Chapter four continuos with the importance to distinguish between information and knowledge (Nonaka, 1994; Machlup, 1983) as well as the need for action in order to acquire the type of knowledge that will create value for the organisation (Sveiby, 1995; Saint-Onge, 1996). The next section contained a framework consisting of five categories, namely, knowledge acquisition, problem-solving style, dissemination mode, ownership type and storage/memory. This framework is used in order to describe the dominant knowledge modes within an organisation. (Jones and Jordan, 1997; 1998) Finally, the organisational knowledge creation theory explained how knowledge held by individuals and organisations can be expanded and enriched through the interactive amplification of tacit and explicit knowledge held by individuals and organisations. Essential in this process are also the social interactions between individuals in the organisation, as well as the capacity to transform knowledge into a concrete form. For a more effective implementation of knowledge creation, there are several conditions that may facilitate the process. Creative chaos, redundancy of information, as well as a middle-up-down management models, and hypertext management may be of practical use. (Nonaka, 1994). .

(35) .QRZOHGJH0DQDJHPHQW±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he organisation described below, the case study organisation, is a product group, part of a larger multinational organisation, one of the leading companies within its field of business, with more than 30,000 employees around the globe and annual sales exceeding $7 billion (Annual report, 1997). The case study organisation is one of the companies fastest growing product groups (E, 1998). The organisation is currently experiencing a turbulent period due to the products rapid growth as well as to a few years old restructuring with a company from a different country which has proven somewhat difficult to manage (F, 1998). .QRZOHGJH$FTXLVLWLRQ As in the theory section of this thesis the knowledge acquisition process is divided into focus and search (Jones and Jordan, 1997;1998). 5.2.1 Focus Focus describes the way in which new knowledge is acquired, namely through an internal- or external process (Jones and Jordan, 1997;1998). The focus of the knowledge acquisition in the organisation is perceived by the majority of the interviewees as initially being internal, transcending into an external focus, mainly through the use of consultants, industry journals and customer contact, working as a process (A; B; C; D and E, 1998). In order to fully utilise the potential of external sources, a basic knowledge base acquired internally is demanded as well as networking opportunities (B, 1998). In dealing with an external focus the importance of personal relationships and trust cannot be emphasised enough (B, 1998). The external focus on knowledge acquisition is continuously growing, becoming a greater and greater part of the entirety after a long period of focusing too much on internal aspects (F, 1998). 5.2.2 Search The term search is used to determine whether the process of knowledge acquirement is focused or opportunistic (Jones and Jordan, 1997;1998).. .

(36) .QRZOHGJH0DQDJHPHQW±WKHFUHDWLRQRIDQDVVHW. The empirical findings indicate that the nature of the business and products, as well as the environment are very dynamic and incorporates a very high degree of development. This has lead to a search dimension almost exclusively described as focused, dealing with a specific problem or opportunity, often using outside consultants (A; B; C; D; E; F, 1998). Despite the fact that the search is intentional, the share volume of knowledge gathered, in itself complicates the process of solving the problem or utilising the opportunity (B, 1998). At the same time there is an explicit need for occasional brainstorming and discussion sessions in order to create and maintain an adaptive organisation (A; C, 1998). The focused search used exclusively in combination with time pressure is not perceived as facilitating the necessary incentives for the individual within the organisation, as well as the organisation as a whole, to find alternative routes (C, 1998). 3UREOHPVROYLQJ6W\OH The adopted problem-solving style is defined as location, procedures, activity and scope (Jones and Jordan, 1997;1998). 5.3.1 Location Location deals with whether the problem-solving takes place at an individual- or at a teamlevel (Jones and Jordan, 1997;1998). In terms of location the problem solving style was found to be somewhat mixed. Some of the interviewees directly involved with the issues at non-director level stated that all work is more or less performed on an individual basis (A; C; D, 1998). Although a number of people with different skills and tasks are stated to be involved in solving a specific problem, the process is perceived as a procedure of actions rather than a team effort (C, 1998). This lack of coordination has in some cases led to people not knowing what others are doing or even working on. Furthermore, expertise gained internally or externally is seldom-reused (A; C, 1998). There is often a lot of talk regarding teamwork but most tasks are performed on an individual basis (A, 1998). Interviewees at a higher level of the organisation (director-level) stated the direct opposite, i.e. that the main form of location is through teamwork and that they regularly have formal meetings (B; E; F, 1998). However, other interviewees perceived the situation as lacking regularly meetings. This mainly due to extensive travel itineraries, making it difficult for the team members to be at the same place at the same times (A; D, 1998). 5.3.2 Procedures The procedures of the problem-solving process describe whether it is conducted through trial and error or through methods of a more standardised, heuristic character (Jones and Jordan, 1997;1998). The greater part of the interviewees, with the exception of one (B, 1998), stated that the procedures within the organisation with regards to problem-solving is based on trial and error, in terms of identifying the problem and then probing it for a solution (A; C; D; E; F, 1998). Common were though that the procedures of attaining knowledge are considered to be based on experience gained by the individuals within the organisation (A; C, 1998). The .

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