Knowledge is Power…

Information systems have traditionally assisted managers and decision-makers by providing better data, quicker access, better models, or more optimal solutions. Information systems have been used to help us do tasks more quickly and cost-effectively, and have been most helpful to managers in information gathering and decision-making. This is no longer enough, however. Today’s information systems must truly add value to the organization through the creation, capture, distribution, application, and leveraging of knowledge – or knowledge management.

The role of information technology is being transformed in four major ways…

1. The traditional emphasis on fast access to data, gathered in functional departments, is shifting toward more centralized access to integrated and coordinated data to support decision-making.
2. Information systems are focusing less on summarizing data in reports, and more on sifting through huge volumes of data for potential problems or opportunities, hidden patterns, and meanings.
3. There is increased need for technologies that support effective communication, document sharing, knowledge sharing, and decision-making among groups – particularly those separated by time and distance.
4. Systems are connected to the outside world via the Internet to facilitate communications, relationship building, and sharing of information and experiences with customers, clients, and industry partners.

The globalization of the world’s industrial economies is one reason for the changing role of knowledge management. Globalization greatly enhances the value of information to the firm and presents new challenges and complexities in communicating, controlling, and coordinating information and operations across the far-flung corporation. More tasks are now done in a distributed environment by people scattered across different countries, cultures, and time zones. The relatively recent explosion of electronic commerce has further increased the pace of business transactions and made it even easier for customers to quickly identify and make comparisons of price and quality among global competitors.

A second force changing the business environment is the transformation of major industrial economies into information-based service economies in which knowledge and information become the key ingredients in creating wealth. Knowledge and information work currently account for some 60 percent of the American gross national product, and nearly 55 percent of the labor force. The growing importance of knowledge management is evident in the changing roles of information systems in organizations.

Information is a Critical Strategic Resource

Information and information technology have become critical strategic resources for businesses. In order to bring all the necessary information and expertise to bear on a task or decision, work must increasingly be done cross-functionally, and by teams rather than individuals. The greater availability and importance of information is resulting in more decentralized decision-making and information sharing.

Technologies that gather, integrate, and facilitate centralized access to data are the foundation of many knowledge management activities. A relatively new and rapidly growing technology is an Enterprise Resource Planning (ERP) system. An ERP is a business management system that integrates all facets of the organization including inventory planning, manufacturing, sales, payroll, and finance so that they can become more coordinated through information sharing. This integration is critical because it means that, as a transaction is processed in one area, such as receipt of an order, its impact is immediately reflected in all related areas such as accounting, production scheduling, and purchasing.

The second crucial characteristic of an ERP system is that the modules are designed to reflect a particular way of doing business based on a value chain view in which functional departments coordinate their work. Many businesses are finding this coordinated approach far preferable to the old way of doing business (by separate functional departments) because it greatly facilitates data gathering, integration, information sharing, and decision-making.

A data warehouse is another technology that supports centralized access to integrated information. Data warehousing is the creation and maintenance of a large special-purpose database containing current and unified data from all functional units, as well as easy-to-use query, analysis, and reporting tools. It pulls data from the various departmental systems, and sometimes from external sources as well, and puts them into a separate warehouse so that users can access and analyze the information without endangering the original systems.

This centralization of data about a company’s business, products, and customers eliminates redundancies and errors. It also allows employees to draw upon a wide range of information without having to make multiple requests of different departments. The fact that one standardized set of analytical, query, and reporting tools can now be used across the board greatly facilitates the transformation of data into useful information.

Data Analysis Separates Gold from Dross

As the amount of available data increases, managers must find ways to turn all that data into useful information. Data mining is an advanced analytical technique for uncovering small nuggets of information within vast quantities of data. Data mining actually involves using a variety of analytical techniques to identify patterns, correlations, or trends in massive amounts of data.

Data mining has many valuable applications such as market segmentation (identifying the common characteristics of customers who buy the same products from your company); customer churn (predicting which of your customers are likely to defect to a competitor); fraud detection (identifying which transactions are most likely to be fraudulent); interactive marketing (predicting what each individual accessing a Web site most wants to see); and market basket analysis (understanding what products or services are commonly purchased together, e.g., beer and pretzels).

Artificial intelligence tools can also help draw meaning from data. Many people associate the term “artificial intelligence” with expert systems designed to capture the expertise of humans in a rule-based computer program. Expert systems can help businesses with knowledge management by capturing and codifying knowledge that might otherwise be lost due to the absence, retirement, resignation, or death of an acknowledged expert.

Neural networks are a different and more flexible form of artificial intelligence useful in knowledge management. Neural networks attempt to tease out meaningful patterns from vast amounts of data. They use statistical analysis to recognize relationships and can actually adapt as new information is received – a process called adaptive learning.

Neural networks enhance the organization’s knowledge base by suggesting solutions to specific problems that are too massive and complex for efficient analysis by human beings. For example, neural nets are used by BankAmerica to evaluate commercial loan applications. American Express uses neural nets to read handwriting on credit card slips while Arco and Texaco use it to locate oil and gas deposits below the earth’s surface.

Groupware Links People and Information

Groupware is another application of information technology that has emerged to support the needs of global organizations and virtual teams. Groupware such as Lotus Notes offers e-mail, calendaring, group scheduling, Web access, and information management in a relatively easy-to-use and customizable environment.

Virtual teams working from different locations can set up discussion “databases,” accessible remotely over the Internet, that organize such things as e-mail discussion threads, spreadsheet files, and slide shows around central topics or tasks. In a corporate setting, one discussion database might summarize daily activities on a client project, another might provide a searchable set of names and contacts, another might include company “best practices” or guidelines, and another might contain client contracts, specifications, and communications.

In an educational environment, there might be a discussion database established for each individual course. Students in the course could use their virtual workspace to ask questions, post responses, get assignments and handouts, and submit work. Student project teams might also have their own workspaces, as could faculty committees or research teams who find it difficult to meet face to face. Databases can be customized to admit or restrict specific users as appropriate.

Another type of groupware is designed specifically to facilitate group meetings. Some researchers have estimated that middle managers spend 35 percent of their work week in meetings and that top managers spend 50-80 percent of their time in meetings. Many such meetings are characterized by unclear goals, unequal participation, and difficulty reaching consensus.

An Electronic Meeting System (EMS) consists of a computer-supported meeting room containing networked computers for each participant and a large public screen to facilitate common viewing of information. Participants can provide their input simultaneously and anonymously via computer. This has been shown to result in greater participation and more complete consideration of topics. The display of incoming inputs on the public screen during brainstorming also tends to stimulate a larger number of ideas.

EMS software contains tools designed to support activities such as team idea generation, organizing ideas, prioritizing ideas (voting, ranking), and policy development such as stakeholder identification. Each computer-based activity is followed by facilitated discussion. More recent versions of these tools can be used in a “different time, different place” environment with members participating remotely with the help of videoconferencing systems and the web.

Information Technology Used in Supply Chain Management

Businesses recognize the growing importance of communicating and forming alliances with customers and suppliers so they can adapt quickly to the ever-changing environment. Information technology is increasingly being used strategically for supply chain management which refers to the integration of supplier, distributor, and customer logistics requirements into one cohesive process. To manage the supply chain, a company tries to eliminate delays and cut the amount of resources tied up along the way, ideally creating more efficient customer response systems as well.

Wal-Mart’s “continuous inventory replenishment system” captures sales data via point-of-sales terminals at the checkout counter and immediately transmits electronic restocking orders directly to its suppliers. This system allows them to keep prices low, shelves well-stocked, and overhead costs at only 15 percent of sales revenue. Enterprise resource planning (ERP) systems may also be extended outside the firm to increase coordination with supply chain partners.

The supply chain can go global as well. Adaptec Inc, a Silicon Valley-based computer chip company that obtains many of its products in East Asia, is using the Internet to give its suppliers access to purchase orders and factory-status updates. The company says this has made it more responsive, cutting the manufacturing cycle from 12 weeks to eight and saving millions in inventory costs.

Dell Computer is linking its entire supply chain via the Web. Chrysler’s Supplier Partner Information Network (SPIN) allows 3500 of Chrysler’s 12,000 suppliers selective access to portions of its intranet where they can access current data on design changes, parts shortages, packaging information, and invoice tracking. SPIN can even automatically notify suppliers of critical parts shortages. Chrysler believes SPIN has reduced the time to complete various business processes by 25 to 50 percent.

Knowledge Management Requires Organizational Change

While the capabilities and roles of information technology are changing to address new business challenges, technology alone is insufficient for meeting the demands of the global and information-based economy. Knowledge management technologies necessitate fundamental changes in the organization itself in order to effectively integrate, communicate, and distribute information. The potential benefits of these information technologies can be realized only if their implementation goes hand in hand with changes in organizational structure and culture.