1

2 Objectives

 Understand the impacts knowledge management on organizations &

organizational performance at several levels

 People

 Processes

 Products

 Overall performance
 How Knowledge Management Impacts
3
Organizations?

Knowledge
Knowledge Organization
Management

•KM processes can impact organizations at these four levels in two main ways.
•First, KM processes can help create knowledge, which can then contribute to
improved performance of organizations along the above four dimensions.
•Second, KM processes can directly cause improvements along these four
dimensions.
4 Why Firms adopt KM?
 Retaining expertise of employees

 Enhancing customers’ satisfaction with the company’s

products

 Increasing profits or revenues.

Revenue describes income generated through business

operations, while profit describes net income after
deducting expenses from earnings.
5 Dimensions of Organizational
Impacts of KM

Organizational
People Processes Products
Performance

Knowledge Management
6 Impact on People
 KM can facilitate employee learning (from each other as well as from
external sources).

 KM also causes employees to become more flexible, and enhances

their job satisfaction.

 This is largely because of their enhanced ability to learn about

solutions to business problems that worked in the past, as well as
those solutions that did not work.
 7 Impact on Employee Learning
 KM can help enhance the employee’s learning and exposure to the latest knowledge
in their fields. This can be accomplished through

 Externalization e.g., writing a report on lessons learned from a project

 Internalization e.g., when employees preparing for a later project read it and
then use this report to acquire the knowledge gained by the earlier team.

 Socialization e.g., through joint activities such as meetings or informal

conversations.

 Communities of practice i.e.(recall), an organic and self-organized group of

individuals who are dispersed geographically or organizationally, but
communicate regularly to discuss issues of mutual interest
8 Impact on Employee Adaptability
 Employees are likely to adapt when they interact with each
other/ employees to continually learn from each other.

 They are more likely to accept change/ the employees are

likely to possess the information and knowledge needed to
adapt whenever organizational circumstances so require.

 Awareness of new ideas and involvement in free-flowing

discussions not only prepare them to respond to changes,
but they also make them more likely to accept change.
9 Impact on Employee Job Satisfaction
 Recent study found that in organizations having more employees
sharing knowledge with one another.

 Turnover rates were reduced,

 Positively affecting revenue and profit

 Employees feel better because of their knowledge acquisition and skill

enhancement.

 Employees’ market value is enhanced relative to other organizations’

employees.
10 Cont..
 KM also provides employees with solutions to problems they face in
case those same problems have been encountered earlier, and
effectively addressed.

 Providing tried-and-tested solutions (e.g., via the direction

mechanism) amplifies employees’ effectiveness in performing their
jobs.

 Also helps keep employees motivated for a successful employee

would be highly motivated while an employee facing problems in
performing his job would likely be demotivated.
11 How KM Impacts People

Knowledge Employee
Knowledge
Management Learning

 Thus, as a result of their increased knowledge,

improved market value, and greater on-the-job Employee
performance, knowledge management facilitates Adaptability

employees’ job satisfaction.

 In addition, some approaches for knowledge

Employee
management, such as mentoring and training, are Job Satisfaction
also directly useful in motivating employees and
therefore increasing employee job satisfaction
12 Impact on Processes
 KM enables improvements in organizational processes such as
marketing, manufacturing, accounting, engineering, and public
relations

 These impacts can be seen along three major dimensions

 Effectiveness

 Efficiency

 Degree of innovation of the processes

13 Effectiveness, Efficiency and Innovation
 Effectiveness is performing the most suitable processes and making
the best possible decisions

 Efficiency is performing the processes quickly and in a low-cost

fashion.

 Innovation is performing the processes in a creative and novel

fashion, that improves effectiveness and efficiency or at least
marketability.
14 Impact on Processes
 Impact on Process Effectiveness

 KM can enable organizations to become more effective by helping them to select and
perform the most appropriate processes

 KM enables organizations to quickly adapt their processes according to the current

circumstances.

 Impact on Process Efficiency

 Managing knowledge effectively can also enable organizations to be more productive

and efficient

 Impact on Process Innovation

 KM helps to produce innovative solutions to problems as well as to develop more

innovative organizational processes
15 How KM Impacts Organizational Processes?
.

Process Effectiveness
• Fewer mistakes
• Adaptation to changed circumstances

Process Efficiency
Knowledge
Knowledge • Productivity improvement
Management • Cost savings

Process Innovation
• Improved brainstorming
• Better exploitation of new ideas
16 Impact on Products
 Knowledge management also impacts the organization’s products. These
impacts can be seen in two respects: value-added products and
knowledge-based products.

 Whereas the impacts on the above dimensions come either through

knowledge or directly from KM, the impacts below arise primarily from
knowledge created through KM.

Knowledge • Value-added Products

Knowledge
Management • Knowledge-based products
17 Impact on Value-Added Products
 KM processes can help organizations offer new products or
improved products that provide a significant additional value as
compared with earlier products

 Value added products refer to products that have additional features,

benefits, or services that differentiate them from similar products in
the market.

 These products offer something extra to the customers, such as

improved quality, higher performance, better design, or additional
services.
18 Impact on Knowledge-Based Products
 knowledge-based products are products that are developed based on
specialized knowledge or expertise. These products are typically
intangible and can be in the form of information, advice, or consulting
services. Examples of knowledge-based products include software
applications, educational materials, expert advice, and professional
services.
19
 The main difference between value added and knowledge-based products
lies in their nature and how they provide value to customers.

 Value added products focus on enhancing the product itself, adding value
through improved features or benefits.

 Knowledge-based products, on the other hand, provide value through the

specialized knowledge or expertise that they offer, helping customers solve
problems, make informed decisions, or gain a competitive advantage.
 In summary, value added products offer additional physical or tangible benefits,
while knowledge-based products provide intangible value through specialized
knowledge or expertise. Both types of products can be valuable to customers,
depending on their specific needs and preferences.
20 Impacts on Organizational Performance
 Knowledge management can impact overall organizational
performance either directly or indirectly.

 Direct impact of KM on organizational performance occurs

when knowledge is used to create innovative products that
generate revenue and profit or when the knowledge
management strategy is aligned with business strategy.

 Measuring direct impact is relatively straightforward and

It can be observed in terms of improvements in return on
investment.
21 Cont.…
 Indirect impact of KM on organizational performance comes about
through activities that are not directly linked to the organization’s
vision, strategy, revenues, or costs.

 Such effects occur, for example,

 Through use of KM to demonstrate intellectual leadership within

the industry, which, in turn, might enhance customer loyalty

 Via use of knowledge to gain an advantageous negotiating position

with respect to competitors or partner organizations

 Unlike direct impact, cannot be directly associated with transactions

and therefore cannot be easily measured.
22
Cont.…
 example of indirect benefits is the use of knowledge management to
achieve economies of scale and scope.

 Economy of Scale (lower unit cost with larger plants)

 The average cost of production per unit decreases with increase in
output/volume of the product.
 Due to economy of scale, a smaller firm has higher costs than
those of larger firms, which makes it difficult to compete with the
larger firms in terms of price.
23 Cont.…
 Economy of Scope (lower unit output cost with more product types)

 The total cost of that same company producing two or more different
products is less than the sum of the costs that would be incurred if each
product had been produced separately by a different company.

 Due to economy of scope, a firm producing multiple products has

lower costs than those of its competitors focusing on fewer products
24 Indirect Impacts on Economy of Scale and Scope
 By improving the organization’s ability to create and leverage
knowledge related to products, customers, and managerial resources
across businesses.

 By enabling sharing of products designs, components, manufacturing

processes, and expertise across businesses – thus reducing development
and manufacturing costs, accelerating new product development, and
supporting quick response to new market opportunities.

 By enabling cross-selling of existing products or development of new

products, by sharing knowledge of customer preferences, needs, and
buying behaviors.
25 Cont.…
 By enabling the deployment of general marketing skills and sales forces
across businesses.

 Although economies of scale and scope could, lead to improvements in

return on investments,

 The effect of KM on scale and scope economies and their subsequent

effect on return on investments cannot be directly linked to specific
transactions and this is therefore considered as an “indirect” impact.
26 Indirect Impacts on Sustainable Competitive Advantage

 Another indirect impact of knowledge management is to provide a

sustainable competitive advantage.
 Knowledge can enable an organization to develop and exploit other tangible and
intangible resources better than the competitors can, even though the resources
themselves might not be unique.
 Knowledge (especially context-specific tacit knowledge) tends to be unique and
therefore difficult to imitate.
 Moreover, unlike most traditional resources, it cannot easily be purchased in a
ready-to-use form.
 To obtain similar knowledge, competitors have to engage in similar experiences,
but obtaining knowledge through experience takes time.
 So competitors are limited in the extent to which they can accelerate their
learning through greater investment.
27
How Knowledge Management Impacts
Organizational Performance
.

Organizational Performance
• Vision
• Scale economies
Knowledge • Strategy
Knowledge • Scope economies
Management • Revenues
• Sustainable competitive
• Costs
advantage
 28
A Summary of Organizational Impacts of
Knowledge Management
.
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THANK YOU!