Aligning KM Market’s Top and Bottom Lines Erick Brethenoux

1. Aligning KM Market’s Top and Bottom Lines Erick Brethenoux APQC’s Fifth Knowledge Management Conference - December 8, 2000

2. Shifting Paradigms • The real infrastructure is culture Mechanical Model Natural Model Newton Producers Capital Optimum design Machines / clocks Command & Control Hierarchies Division of labor Land, energy & materials Einstein Consumers Creativity Adaptation Organisms / ecologies Autonomy & vision Self-organizing teams Synthesis of minds Knowledge Scientific leaders Sources of economic authority Principal economic constraint Strategic objectives Central metaphors Leadership implications Structure Organizing principles Sources of value

3. From a Troubled Past... Technology Shortcomings Economic Conditions … To a promising adolescence • KM relies on IT to be efficient • Scalable technologies (scaling the network) • KM initiatives are business related • Internet has changed our professional culture for communications • Systems heterogeneity • Inadequate infrastructures • Immaturity of enabling technologies • Rightsizing From Corporate Memory to Knowledge Management

4. Numbers on the Street a) Software spending in KM - (CAGR 67%) b) Services spending in KM - (CAGR 27%) c) Software and services spending as a % of total spending

5. (Q + ) K T T K An Enterprise Value Equation Enterprise Value = iX(E*G) X = • E = Earnings • G = Growth • Q = Fundamentals Quality • = Vision Quality • = Timing Quality (distance between technological readiness & market acceptance) • i = inefficiency of the market (hype, fashion, ignorance, market fluctuations, Mr. Greenspan, consumer indices, presidential elections…)

6. K T X as the Measure of Intangibles Keep up Stay ahead Must Know Does Know Competition Knows Internal Gap (Execution) External Gap (Vision) Organizational Issues (Strengths & Weaknesses) Environmental Issues (Opportunities & Threats) X Q

7. (Q + ) • Q -> Execution - Fundamentals • Resource-based view • Evolutionary economics • -> Execution/Vision - Alliances • Resource dependence • Strategic alternatives • -> Vision - Innovation • Organizational learning • Sustaining vs. disruptive K K T T The Components of X

8. Financial Practices Management Technology Marketing Q: Fundamentals - A Resource-based View • Fundamental intangibles • Emphasis on resources • Competitive advantage is a combination of strategically unique and rare resources • Strong secrecy, legal, and patents all cultivate high barriers to entry • Knowledge transfer across firms is an unknown concept

9. Q: Fundamentals - Evolutionary Economics • Know-how embedded in enterprise’s business processes • Business processes evolve in response to external conditions • Internal selection for improved business processes • Breeding of best practices • Competency traps generated by sustained and repeated evolution

10. : Alliances - Resource Dependence T • Strategic Focus: Manage change via inter-firm relationships • Level competitive differences through alliances and standards • Manage absorptive capacity through acquisitions and controls • Knowledge resides in networks of relationships

11. : Alliances - Strategic Alternatives • One corporation • Multiple corporations • Complete control • No control Degree of Corporate Integration and Control • Knowledge sharing • Limited knowledge transfer • Full integration • No integration Acquisition Majority Investment Minority Investment Strategic Alliance T • Full control • Significant control • No/limited control • No control • Full integration • No integration • No integration • Complete independence • Difficult to unwind • Difficult to unwind • Ability to unwind • Easy to unwind • Full knowledge • Partial knowledge • Limited knowledge • Limited knowledge sharing sharing sharing sharing • A number of structural alternatives, reflecting various levels of integration and control.

12. : Innovation - Organizational Learning K • Enterprise’s adaptation is dynamic • Learning as part of the corporate culture - directed / non-directed • Failure to achieve goals stimulates new learning • Limited resources - necessary condition for innovation • Incremental, sustaining innovation leads to myopic learning • Knowledge creation requires strategic intent to invest resources • Institutionalization of change and “technology watch” strategy

13. : Innovation - The Innovator’s Dilemma K Business Value Infrastructure Optimization Business Process Innovation Revenues • CRM • Risk management • Process streamlining • Cultural dynamics • Adaptive strategies • Disruptive technologies Strategic Infrastructure Operations Business-related Operations Time • Logistics • Procurement • Finance • Product elaboration • Marketing intimacy • Best practices mgnt Tactical Sustaining innovation Disruptive innovation Process Competency Non-core Core

14. Value Innovation: The Strategic Logic of High-Growth Companies • High-growth companies do not compete - they make their competitors irrelevant • They build on the powerful commonalities in features that customers value • They think in terms of total solutions (rather than merely overcome compromises enforced by the industry) • They build fundamentally different value curves for what customers value • Enterprise value in Pioneers, sizeable Migrators, but never in Settlers

15. C11, C12, C13… R11, R12,R13… P11, P12, P13… P*1t C21, C22, C23… R21, R22,R23… P21, P22, P23… P*2t C31, C32, C33… R31, R32,R33… P31, P32, P33… P*3t Ci1, Ci2, Ci3… Ri1, Ri2,Ri3… Pi1, Pi2, Pi3… P*it What When Where Why How they buy Customer-Centered Value: The INFOVALUE Methodology • The Customer Information File Customer Characteristics Response to firm decisions Purchase History What they bought Cost of goods sold Profit Who they are  P*it Pit -> actual profit realized from customer i in period t P*it -> potential profit that could have been realized from customer I with optimal use of info assets

16. K T Investing in Value: Technology Strategies • “Build vs. Buy” strategy beyond technologies • Proactive management of intellectual properties • Innovation does not imply reinventing the wheel • Greater attention to external monitoring of technologies & business processes • Organizational changes to support technology licensing, joint ventures and acquisition of external technologies and business processes Bottom Line: Uncompromising with Q, practical with , aggressive with

17. The Knowledge Management Quest Approaching Infinity