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Knowledge Management

In an organization composed largely of specialists who direct and discipline their own performance through feedback from colleauges, customers and headquarters, the management of knowledge and information becomes a key to gaining competitive advantage.

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In 1988 Peter Drucker wrote:

The typical business [of the future] will be knowledge-based, an organization composed largely of specialists who direct and discipline their own performance through feedback from colleagues, customers and headquarters. For this reason it will be what I call an information-based organization.

In such an organization, the management of knowledge and information becomes a key to gaining competitive advantage.

“Business today”, echoed Charles Handy in 1992, “depends largely on intellectual property, which resides inalienably in the hearts and heads of individuals.” Both writers were reflecting a growing awareness that companies had moved far from Victorian times, when they were (as Handy put it) “properties with tangible assets worked by hands whose time owners bought”. They had become properties whose most valuable asset was intangible—the knowledge which exists in the heads and hearts of employees or in formal databases, patents, copyrights and so on.

Knowledge was seen as the key to the creation not only of business wealth but also of national wealth. In the British government’s 1998 White Paper on the competitiveness of the nation, it said:

Our success depends on how well we exploit our most valuable assets: our knowledge, skills and creativity … they are at the heart of a modern knowledge-driven economy.

Lester Thurow, an American management professor, went so far as to suggest in a 1997 article in Harvard Business Review that intellectual property rights had become more important than manufacturing products or dealing in commodities. Once companies realized this they became aware of the need to find out how to manage that knowledge, how best to use it to create extra value. This was not an issue they had addressed systematically in the past.

Information technology helped in their efforts to introduce good knowledge-management practices. Developments in it advanced the science immeasurably. Data warehousing (the centralizing of information in vast electronic databases) enabled companies to be more sophisticated and customer-oriented in their business. At last the left hand knew what the right hand was doing; the marketing department knew who was already a customer of the company, and for what product or service.

Knowledge management has been considered as four separate activities:

  • Capturing information . Companies need to ensure that they are not suddenly bereft of vital information when an important individual moves to another employer.
  • Generating ideas . All employees should be encouraged to come up with new ideas, through ideas boxes or by being rewarded for ideas that make or save money for the company.
  • Storing information . Data warehouses have to be structured so that the information in them can be accessed by everybody who needs it.
  • Distributing information . Organizations must encourage the spread of information to others. The hoarding of information has historically been seen as a source of power.

- This article is adapted from “The Economist Guide to Management Ideas and Gurus”, by Tim Hindle.