Journal of Management Development

Knowledge value chain

Ching Chyi Lee Jie Yang
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Ching Chyi Lee Jie Yang, (2000),"Knowledge value chain", Journal of Management Development, Vol. 19
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Knowledge value chain Knowledge

value chain
Ching Chyi Lee and Jie Yang
The Chinese University of Hong Kong, Hong Kong
Keywords Knowledge management, Tacit knowledge, Explicit knowledge,
Knowledge-based value systems, Competitive advantage 783
Abstract Introduces the knowledge value chain model as a knowledge management (KM)
framework. The model consists of knowledge infrastructure (knowledge worker recruitment,
knowledge storage capacity, customer/supplier relationship and CKO and management), the
process of KM (knowledge acquisition, knowledge innovation, knowledge protection, knowledge
integration, and knowledge dissemination), and the interaction among those components
resulting in knowledge performance. Further to the discussion of knowledge value chain (KVC),
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the following viewpoint was proposed: KM guides the way a corporation performs individual
knowledge activities and organizes its entire KVC. It was suggested that competitive advantage
grows out of the way corporations organize and perform discrete activities in knowledge value
chain which should be measured by the core competence of corporation. This article also provides
a cross-reference for e-commerce researchers and practitioners.

Knowledge and knowledge management

Knowledge vs information
Knowledge refers to an observer's distinction of ``objects'' through which he
brings forth from the background of experience a coherent and self-consistent
set of coordinated actions (Zeleny, 1987). Through the process of distinction,
individual pieces of data and information become connected with one another
in a network of relations. Knowledge then is contained in the overall
organizational pattern of the network and not in any of the components.
Knowledge is more than information. Information is data organized into
meaningful patterns. Information is transformed into knowledge when a
person reads, understands, interprets, and applies the information to a specific
work function. Knowledge becomes visible when experienced persons put into
practice lessons learned over time.
One person's knowledge can be another person's information. If a person
cannot understand and apply the information to anything, it remains just
information. However, another individual can take that same information,
understand it and interpret it in the context of previous experience, and apply
the newly acquired knowledge to make business decisions or redefine a
laboratory procedure. Yet a third person may take the same pieces of
information, and through his unique personal experiences or lessons learned,
apply knowledge in ways that the second person may never have even
considered. Information is a component part but not the whole of knowledge
(Machlup, 1982). Knowledge itself is a much more all-encompassing term that
incorporates the concept of beliefs based on information (Dretske, 1981). It also
depends on the commitment and understanding of the individual holding these
beliefs, which are affected by people's interaction and the development of Journal of Management Development,
Vol. 19 No. 9, 2000, pp. 783-793.
judgement, behavior and attitude (Berger and Luckmann, 1967). # MCB University Press, 0262-1711
 Journal of Tacit vs explicit
Management Tacit knowledge is that knowledge which cannot be explicated fully even by an
Development expert and can be transferred from one person to another only through a long
process of apprenticeship (Polany, 1962). Polany's famous dictum, ``We know
19,9 more than we can tell'', points to the phenomenon in which much that
constitutes human skill remains unarticulated and known only to the person
784 who has that skill. Tacit knowledge is the skills and ``know-how'' we have
inside each of us that cannot be easily shared (Lim, 1999).
In fact, both of the definitions have the same meaning. In contrast, explicit
knowledge is relatively easily to articulate and communicate and, thus, transfer
between individuals and organizations. Explicit knowledge resides in
formulae, textbooks, or technical documents. Analogous to the tacit and
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explicit dichotomy, Zuboff (1989) makes a distinction between embodied or

action-centered, skills and intellective skills. Action-centered skills are
developed through actual performance (learning by doing). In contrast,
intellective skills combine abstraction, explicit reference, and procedural
reasoning, which makes them easily representable as symbols and, therefore,
easily transferable.
The conceptual distinction between tacit and explicit knowledge also
appears in Reed et al.'s (1996) discussion of causally ambiguous competencies.
They describe tactics as residing in the inability of even a skilled individual to
spell out explicitly the decision rules and protocols that form the basis of
performance. Badaracco (1991) conceives of tacit knowledge as existing in
individuals or groups of individuals. He refers to such knowledge in
individuals and social groups as embedded knowledge.
Similar distinctions between explicit and largely tacit knowledge in
organizations have been made by Scribner (1986), Nonaka (1988), Hedlund
(1994), and Bohn (1994). Explicit knowledge is the knowledge that can be easily
captured artificially through manuals and standard operations, and then
shared with others either through thought courses or through books for self-
reading. In an organization, tangible knowledge takes the form of job
procedures as well as the company's philosophy and strategy.

Knowledge management
Information is becoming ever more important in our economy, and most
corporations see that knowledge can confer competitive advantage. But
corporations are already flooded with information, and most of us have more of
it than we can handle. Knowledge management (KM) tries to resolve the
troublesome paradox (Anthes, 1998).
A common definition of KM is: ``The collection of processes that govern the
creation, dissemination and leveraging of knowledge to fulfil organizational
objectives''. KM is an emerging set of organizational design and operational
principles, processes, organizational structures, applications and technologies
that helps knowledge workers dramatically leverage their creativity and ability
to deliver business value. In fact, KM is about people and the processes they
 use to share information and build knowledge (Hanley, 1999). Marshall (1997) Knowledge
considered that KM refers to the harnessing of ``intellectual capital'' within an value chain
organization. KM theory discusses accessing and using all information within
an institution, enabling individuals to apply pertinent information to what they
already know, in order to create knowledge. The theory recognizes that
knowledge, not simply information, is the greatest asset to an institution. It
includes the strategies and processes for identifying, capturing, sharing, and 785
leveraging the knowledge required to survive and compete successfully into
the twenty-first century (Gautschi, 1999). KM focuses on ``doing the right thing''
instead of ``doing things right''. In our thinking, KM is a framework within
which the organization views all its processes as knowledge processes.
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Knowledge value chain model

Differences among competitor value chains are a key source of competitive
advantage. In competitive terms, value is the amount customers are willing to
pay for what a corporation provides them. Value is measured by total revenue,
a reflection of the price a corporation's product commands and the units it can
sell. A firm is profitable if the value it commands exceeds the costs involved in
creating the product (Porter, 1985). Creating value for customers that exceeds
the cost of doing so is the goal of any competitive strategy. Value, instead of
cost, must be used in analyzing competitive position since corporations often
deliberately raise their cost in order to command a premium price via
differentiation. Employing Porter's value chain analysis approach, we
developed a knowledge value chain model.
Knowledge value chain consists of KM infrastructure and the KM process's
activities and knowledge performance. These infrastructure components and
activities are the building blocks by which a corporation creates a product or
provides service valuable to its customers. Knowledge performance can be
measured in two categories (van Buren, 1999). One is financial performance.
However, financial assessments such as ROI are particularly difficult to make
for KM activities. The other is non-financial measures including operating
performance outcomes and direct measures of learning. Examples of operating
performance measures include lead times, customer satisfaction, and employee
productivity. Learning measures include such items as the number of
participants in communities of practice, employees trained, and customers
affected by the use of knowledge.
All the non-financial measures can be regarded as the reflection of core
competence of corporation. The KM process's activities are listed along the
bottom of Figure 1.
In any corporation, the KM process can be divided into the five categories
shown in Figure 1. KM infrastructure supports the KM process activities. The
dotted lines reflect the fact that customer/supplier relationship, knowledge
storage capacity, and knowledge worker recruitment can be associated with
 Journal of
Management
Development
19,9

786

Figure 1.
Knowledge value chain
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model

specific KM process activities as well as support the entire chain. CKO and
management are not associated with particular KM process activities but
support the entire chain.

Components of KM infrastructure
Knowledge worker recruitment
The term knowledge worker refers to the worker who possesses competencies,
knowledge, and skills in the organization such as computer engineers,
accountants, etc. If a person leaves the organization, their knowledge goes with
them. Knowledge is acquirable and renewable. It is the source of innovation
and creativity. This is the traditional focus of many training and education
programs. In the knowledge economy, knowledge permeates through
everything important ± people, products organizations.
There have always been people who worked with their minds rather than
their hands. In knowledge era, these are the majority of the workforce. Already,
almost 60 per cent of American workers are knowledge workers. Recruiting
knowledge workers in organizations is a key activity in the long term.

Knowledge storage capacity

Knowledge storage capacity is organizational memory and capabilities for
people to store and reuse information and knowledge. It involves the
organization's routine operations and structures that support employees'
quests for optimum intellectual performance and, therefore, overall business
performance. An individual can have a high level of knowledge, but if the
organization has poor systems and procedures by which to track his or her
actions, the overall knowledge resource will not reach its fullest potential.
Knowledge storage capacity is owned by the organization. It is retained by the
organization when employees leave.
There exist two organizational structures, formal and informal. In formal
organizations, people easily access explicit knowledge. Informal organizations
 are rich in tacit knowledge, which usually is the source of innovation. It is Knowledge
difficult to articulate in writing and is acquired through personal experience. It value chain
is shared by intensive face-to-face communication. To keep the costs of
knowledge transfer low, managers try to turn inherently tacit knowledge into
explicit knowledge. There are different approaches to implement KM, it
depends on what kind of knowledge your people rely on to solve problem.
When employees rely on explicit knowledge to do their work, the people-to- 787
documents approach makes the most sense. When people use tacit knowledge
most often to solve problems, the person-to-person approach works best.

Customer/supplier relationship
Customer/supplier relationship refers to the organization's relationships with
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its customers/suppliers. It might include customer/supplier loyalty for services

or products, the purchasing/sale patterns of different customer/supplier
groups, customer/supplier service reputation, warranties and undertakings by
customer/supplier, and database for customer/supplier.
The relationship between a corporation and its suppliers is very important
and can be regarded as a intangible and agile asset of the corporation. It
enables corporation to meet the needs of customers at a lower cost. Owning
more stable and closer relationship with suppliers than its competitors means
that the corporation has gained a superior competitive position over its
competitors. In other words, the supplier relationship is mainly for cost control
purposes.
Understanding better than anyone else what customers want in a product or
a service is what makes someone a business leader as opposed to a follower.
Turning knowledge into new customized products and services will maximize
a corporation's market value.

CKO and management

As a corporation undertakes a KM program, the position of chief knowledge
officer (CKO) is emerging to coordinate the KM infrastructure components and
KM activities. The CKO is entrusted with the role of transforming intellectual
property into a business value. In other words, The CKO is responsible for the
overall knowledge assets of a company and for defining the area in which the
knowledge capabilities of the organization should evolve, based on its ongoing
mission and vision. The CKO has the ultimate corporation-wide responsibility
for the controlled vocabulary and knowledge directory and tackles the difficult
issues associated with cross-department or cross-corporation processes that
have unique knowledge-sharing requirements.
The CKO also is responsible for ensuring that an appropriate technology
infrastructure is in place for effective KM. The CKO has two principle design
competencies: He is a technologist or environmentalist. Breadth of career
experience, familiarity with his organization, and infectious enthusiasm for his
mission are characteristic of the CKO.
 Journal of In this research, both the CKO and management can be considered as
Management support not only for the other three infrastructure components, but also for the
Development entire process of KM.
19,9 Process of knowledge management
As noted in Figure 1, the process of KM consists of five activities ± knowledge
788 acquisition, integration, innovation, protection, and dissemination.

Knowledge acquisition
In order to do something we need to track down and analyze all the information
and explicit knowledge that is available. This will lead to beginning the process
of knowledge acquisition via knowledge management infrastructure.
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We will discuss two processes through which organizations acquire

information or knowledge: searching and organizational learning.
Organizational information acquisition through searching can be viewed as
occurring in three forms (Huber, 1991):
(1) scanning;
(2) focused search; and
(3) performance monitoring.
Scanning refers to the relatively wide-ranging sensing of the organization's
external environment. Focused searching occurs when organizational members
or units actively search in a narrow segment of the organization's internal or
external environment, often in response to actual or suspected problems or
opportunities. Performance monitoring is used to mean both focused and wide-
ranging sensing of the organization's effectiveness in fulfilling its own pre-
established goals or the requirements of stakeholders. Noticing is the
unintended acquisition of information about the organization's external
environment, internal conditions, or performance.
Organizational learning plays a vital role in knowledge acquisition. The
need for organizations to change continuously, which was emphasized by
Drucker, has long been the central concern of organizational learning theorists.
Just as with individuals, organizations must always confront novel aspects of
their circumstances (Cohen, 1991).
It is widely agreed that learning consists of two kinds of activity. The first
kind of learning is obtaining know-how in order to solve specific problems
based upon existing premises. The second kind of learning is establishing new
premises (paradigms, schemata, mental models, or perspectives) to override the
existing ones.
These two kinds of learning have been referred to as ``Learning I'' and
``Learning II'' (Bateson, 1972) or ``single-loop learning'' and ``double-loop
learning'' (Argyris and Schon, 1978). From our viewpoint, knowledge
acquisition and knowledge innovation certainly involve interaction between
these two kinds of learning, which forms a kind of dynamic spiral. Senge (1990)
 recognized that many organizations suffer from ``learning disabilities''. To cure Knowledge
the diseases and enhance the organization's capacity to learn, he proposed the value chain
``learning organization'' as a practical model. He argued that the learning
organization has the capacity for both generative learning (i.e. active) and
adaptive learning (i.e. passive) as the sustainable sources of competitive
advantage.
789
Knowledge innovation
In a strict sense, knowledge is created only by individuals. An organization
cannot create knowledge without individuals. The organization supports
creative individuals or provides contexts for them to create knowledge.
Organizational knowledge innovation, therefore, should be understood as a
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process that ``organizationally'' amplifies the knowledge created by individuals

and crystallizes it as a part of the knowledge network of the organization.
There are actually three levels of knowledge-creating entities including
individual, group, and organization. On the other hand, the conversion of tacit
knowledge to explicit knowledge is a key process in creating new knowledge. A
knowledge-innovation spiral emerges when the interaction between tacit and
explicit knowledge is elevated dynamically from a lower level knowledge-
creating entity to higher levels.
The assumption that knowledge is created through the interaction between
tacit and explicit knowledge leads to four different modes of knowledge
conversion. The four modes actually are four realizations:
(1) from tacit knowledge to tacit knowledge, which is called socialization;
(2) from tacit knowledge to explicit knowledge, or externalization;
(3) from explicit knowledge to explicit knowledge, or combination; and
(4) from explicit knowledge to tacit knowledge, or internalization.

Knowledge protection
Protection of knowledge is important because it protects creativity and the
interests of knowledge-owners. In legal systems protection of knowledge
means protection of Intellectual Property Rights (IPR) such as copyrights and
patents, which includes provision for a right of legal action against infringers
of IPR and provisions detailing persons or corporations empowered to
authorize the commercial use of IPR and allowing the owner of IPR to charge
fees for such commercial uses. In a sophisticated information technology (IT)
system, knowledge will be protected by filename, by username, by password,
etc., so that knowledge can be reused when it receives a request and checks
against the standard file-sharing users and group table to determine what
rights the user has.
In addition to legal and IT protection, corporations should contract with
employees regarding confidential information and their tenure in case of they
 Journal of leave, and should also develop other protocols and policy guidelines which
Management recognize and promote rights of knowledge, and then implement them by staff
Development awareness and education campaigns.
19,9 Knowledge integration
Latest advances of information technology can facilitate the processes such as
790 acquiring and disseminating knowledge; however, the final burden is on people
deciding how to translate this raw knowledge into actionable knowledge by
means of an acute understanding of their business context. This is a internal
knowledge integration process. Corporations have always had some process to
synthesize their experience and integrate it with knowledge acquired from
outside sources (e.g. inventions, purchased patents). A corporation acquires
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knowledge from years of experience in such things as manufacturing, sales,

and service. This cumulative experience from different departments, together
with information gathered from outside sources, can be integrated into the KVC
of the organization, which is a inter-sub-KVC integration process, eventually
being the base of KM infrastructure.

Knowledge dissemination
The most effective way to disseminate knowledge and best practice is through
systematic transfer. That is, to create a knowledge-sharing environment.
It is no coincidence that IT has blossomed at the same time that knowledge
is becoming recognized as the most valuable of a corporation's assets. Explicit
knowledge can be shared through an IT system. However, tacit knowledge is
best shared through people. The more ``valuable'' the knowledge, the less
sophisticated the technology that supports it. Dissemination of tacit knowledge
is a social process. People must contribute knowledge to become part of a
knowledge network. IT alone will not remove significant KM barriers. IT will
not change people's behaviors, increase management's commitment, nor create
a shared understanding of its strategy or its implementation.
To show its commitment for sharing knowledge, an organization should
foster the employee's willingness to share and contribute to the knowledge
base. This may be the most difficult obstacle to overcome. Current performance
and rewards systems exemplify an individual's personal achievement and
rarely take into account an individual's contribution to or participation in
formal collaboration efforts. Reward structures and performance metrics need
to be created which benefit those individuals who contribute to and use a
shared knowledge base. Those who excel at knowledge sharing should be
recognized in public forums such as newsletters and e-mails. By effective
communication, the knowledge disseminated flows to the acquirers who are
searching for and learning knowledge or information they need. Employees
must be made to understand that the success and advancement in their career
will be based on KM principles. KM skills must be seen to be as important to
career advancement as continuing education and communication skills.
 KVC, business value chain, and competitive strategy Knowledge
As the value chain itself implies, each element of activity can create value and value chain
then all the value flows to the endpoint of the business value chain and joins
together, forming the overall value of business, which is usually expressed as a
margin (see Figure 2).
Probing deeply, we can find that the added value comes from the
competence of element activity itself, which in turn comes from specific sub- 791
KVC of itself. For example, sub-KVC in inbound logistics (IL) activity enables
business to gain the inbound logistics competence, and then the added value
follows. The same process occurs in other activities including operations (OP),
outbound logistics (OL), marketing and sales (MS), and service (SE). Finally, all
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Figure 2.
Relationship between
business value chain
and KVC
 Journal of the sub-KVCs are integrated together into the whole KVC. In the process of
Management knowledge integration, the competence of knowledge infrastructure is
Development gradually forming. In the end, corporation competence follows KVC.
By analyzing the above, we might note that competence is after all the
19,9
measurement of each sub-KVC. That is the reason why we feel that the core
competence of the corporation should be employed as the key non-financial
792 measure of knowledge performance.
In the whole process of KM, the innovation activity fits the product
differentiation strategy, which can enable corporation gains the competitive
advantage, as mentioned before (see Figure 3), while reusing knowledge fits
low cost strategy, by which competitive advantage gained again. In consulting
corporations, it's just like building with bricks: consultants reuse existing
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bricks while applying their skills to construct something new. The reuse of
knowledge saves work, reduces communication costs, and allows a company to
take on more projects. A case study of KM by Hansen et al. (1999) noted that, as
a consequence, corporations such as Andersen Consulting and Ernst & Young
have been able to grow at rates of 20 per cent or more in recent years. Ernst &
Young's worldwide consulting revenues, for example, increased from $1.5
billion in 1995 to $2.7 billion in 1997. Generally, managing knowledge assets
should, like patents, trademarks and licenses, even add knowledge to the
balance sheet.

Conclusion and further discussion

Knowledge is information plus causal links that help to make sense of this
information. KM is a process that transforms information into knowledge.
KM guides the way a corporation performs individual knowledge activities
and organizes its entire knowledge value chain. It is suggested that competitive
advantage grows out of the way corporations organize and perform discrete
activities in the knowledge value chain, which should be measured by the core
competence of the corporation.
In the end, we would raise another assumption for further discussion, so that
for KM to ``open the black box'' of a corporation and examine its intricate
details. We assumed that the corporation should be treated more or less as a
box of tricks producing the predictable outputs of knowledge-based products
and services from specific inputs of information or/and knowledge.

Figure 3.
The process of KM and
competitive strategy
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