RESEARCH - STATE OF THE KM UNION ADDRESS

Entered 25/05/03

STATE OF THE KM UNION ADDRESS
BY THOMAS STEWART, 2001
The Wealth of Knowledge. Intellectual Capital and
the Twenty-First Century Organization.
Final Chapter. 'Afterword....And Yet So Far.'
Nicholas Brealey Publishing London. . P 325-436

Thomas Stewart is known for his several books and articles on knowledge management over several years. His 2001 book helped to document the progress of KM so far and the final chapter gives a clear summary.

He has seen a few clear cases where management have shown clear signs of a changed mindset to 'company assets.' One case he gives is from a prominent US bank, J.P. Morgan Chase. On 23 Wall Street, New York, there used to be the J.P. Morgan bank housing naturally a vaultthat stored tremendous wealth. Now the bank has become J.P. Morgan Chase…but the vault now has changed into something even more valuable than a money container. That area is now part of the training center of the huge bank. 'There- in the knowledge and skills of its people, as manifested in intellectual capital- is where the real wealth of J.P. Morgan Chase, or any company, can be found.'

He believes we have come a long way since the first year that "brainpower" and intellectual capital were being commonly used back in 1991.

In a meeting with another founding father of the knowledge management movement, Larry Prusak, now the director of the Knowledge Management Institute at IBM, they re-appraised the first ten years in the early evolution of the discipline.

'Four accomplishments stand out.'

1. Most board of directors will listen if the subject is brought up.
In 1991, although "core business" was becoming a mainstream phrase, "core competence" and "intellectual capital" were barely heard of. The now popular Balanced Scorecard by Kaplan and Norton had not been introduced. Jack Welch of GE fame was still a lone figure in 1991 when he declared after reading Thomas Stewart's unique article of Fortune magasine 3 June, " Intellectual capital is what it's all about. Releasing the ideas of your people is what we're trying to do, what we've got to do if we're going to win." But that was part of Welch's central attitude about business for years before the article came out, admits Stewart.

2. It survived the business fad phase.
The Forrester Research group estimated that six out of seven knowledge management projects were undertaken with no promised return on investment. Coca Cola and Morgan Stanley had appointed chief knowledge officers only to let them go after a few years. But KM is still as talked about today as in the early years.

3. Communities of practice emerged as a workable component of KM.
Distinct work groups were officially recognised to add real value to the business, becoming the shop floor of human capital, where advanced learning and innovation occur. It's foundation is the principle of learning through your peers and contacts and sharing those discoveries together.

4. Knowledge sharing cultures.
'Most companies seem to have changed from a smug, knowledge-hoarding mentality to one of knowledge sharing.' Some key drivers to this culture shift have been the Quality movement and Benchmarking in the 1980's and communication technologies like Lotus Notes and the World Wide Web of the mid-1990's. 'The ethos of sharing, like the realization that learning is social, seems stronger than ever.' Another sign of these new cultures is the acceptance of some common vocabularly. 'Human, structural, and customer capital', 'tacit and explicit knowledge' and 'storytelling' are just some of the accepted phrases and concepts for communicating the new discipline.

Wealth Creation
Stewart proceeds to provide a logical argument for factors that generate continued wealth and not to persist with industrial age views of capital. He highlights the inevitable commoditisation of products and services that leads to poor returns and how technology has accelerated a relatively new factor in wealth generation - understanding the needs of your customers, named 'customer capital' (see KM Tutorials> Terminology for more).

People have been obsessed with material goods bringing them wealth for centuries. The great rubber manufacturing era, catapulted by George Goodyear's 1839 invention of vulcanising rubber, eventually into car tires, saw the city of Manaus, central Brazil become one of the richest in the world for decades…until rubber plants sprang up in other parts of the world. Eventually today's breakthrough becomes yesterday's commodity. 'Every commodity is a mug's game, because over time all commodities decline in price. They always have; they always will.' Natural resources provide low returns.

Examples were given about the price of metals being continually at all time low prices. Countries like Korea with low natural resources outstrip similar size countries like Ghana who has high natural resources by six times in the last forty years. The crown prince of Bahrain recently stated that his country is diversifying out of oil production early to really concentrate on developing 'our human capital.'

The internet dot.com obsession and failure taught us a number of things about business. Unlike recognised thought leaders like Rosabeth Moss Kanter and Michael Porter who concluded that the dot.com phenomenon was really the old economy that had access to new technology, Stewart argues it was more than this.

The connectivity that the internet brought allowed for expanding markets. It allows for quick decisions and quick responses. Companies are more closely connected to the customer than ever before. Online customers seem to behave somewhat differently from that of traditional customers. At Bank of America, which has more online customers than any other U.S. bank, "bill-pay customers" change banks 60 to 70 percent less often, keeping checking account balances 20 to 30 percent higher, and park 30 to 40 percent more total assets with the bank, compared to others in similar demographic groups. The head of consumer e-commerce for the bank stated : "The real value in a bill-pay customer isn't cost savings. It's the stickiness of the relationship." The added-value the internet has brought is emotional and intellectual connections with the 'customer' not just electronic. And so companies will be forced to be smart about managing knowledge assets:
their intellectual assets (what valuable things they already know) and their
intellectual aptitude (what valuable things they can generate).

Adaptation and creation is the key to successful business. It cannot be achieved by seeing an organisation as a collection of fixed mechanical parts.
Mechanical, static parts cannot adapt to environmental changes. Parts need to adapt. Through seeing them as dynamic parts, like 'connections of brain cells, nerves and sinews' managing and growing the knowledge assets not only can 'improve a company's performance today, but its responsiveness, its repertoire of skills, and its capacity to deal with the future.

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