Chapter 12
Business Analytics and
Knowledge Management
Managing and Using Information Systems: A
Strategic Approach
by Keri Pearlson & Carol Saunders
Learning Objectives
• Understand the difference between data,
information, and knowledge.
• Define how tacit knowledge differs from explicit
knowledge.
• Describe why knowledge management is so
important.
• Understand how knowledge is generated and
captured.
• Describe a knowledge map.
Real World Examples
• Harrah’s found a way to double revenues by
collecting and then analyzing customer data.
• They mine their customer data completely.
• They use loyalty cards to track customer behavior
and to determine high revenue customers.
• Determined that these customers were motivated
by reduced hotel room rates, and wanted quick
service.
• They found ways to reduce lines and wait time.
– High revenue customers rarely waited in any line.
• Found ways to keep customers coming back.
Knowledge Management
• Knowledge Management (KM) is defined as the
processes needed to generate, capture, codify and
transfer knowledge across the organization to
achieve competitive advantage
• Technology plays a significant role in managing
knowledge.
• Intellectual capital is defined as knowledge that has
been identified, captured, and leveraged to produce
higher-value goods.
• Intellectual property allows individuals to own their
creativity.
Knowledge Management
• KM is related to IS in three ways:
• IT makes up the infrastructure for KM systems
• KM systems make up the data infrastructure for many
IS applications
• KM is often referred to as an application of IS
• A position called “Coordinator for International
Intellectual Property Enforcement” was created
by the US Department of Commerce.
DATA, INFORMATION, AND
KNOWLEDGE
Information
• Data, information, and knowledge have
significant and discreet meanings within KM
(Figure 12.1 shows their differences).
• Data are specific, objective facts or observations
(inventory contains 45 units).
• Data is turned into information by organizing the
data into some unit of analysis (dollars, dates,
customers, etc.).
Data Knowledge Information
Simple observations Data with relevance Valuable information
of the world: and purpose: from the human mind:
•Easily captured •Requires unit of includes reflection,
•Easily structured analysis synthesis, context
•Easily transferred •Needs consensus on •Hard to capture
meaning electronically
•Compact,
quantifiable •Human mediation •Hard to structure
necessary •Often tacit
•Often garbled in •Hard to transfer
transmission •Highly personal to
the source
More human contribution
Greater value
Figure 12.1 The relationships between data, information, and knowledge.
Knowledge
• Knowledge is a mix of contextual information,
experiences, rules, and values.
• Richer, deeper, and more valuable.
• Consider knowing –
– What? - based upon assembling information and
eventually applying it.
– How? – applying knowledge leads to learning how to
do something.
– Why? – casual knowledge of why something occurs.
– (Figure 12.2 graphically illustrates these types of
knowing).
Reasoning
Know-Why
Information Procedure
Know-What Application Know-How
Experience
Figure 12.2 Taxonomy of Knowledge
Tacit vs. Explicit Knowledge
• Tacit knowledge is personal, context-specific
and hard to formalize and communicate
– A [knowledge] developed and internalized by the
knower over a long period of time . . . incorporates so
much accrued and embedded learning that its rules
may be impossible to separate from how an individual
acts. ‘knowing how’
• Explicit knowledge can be easily collected,
organized and transferred through digital means.
– A theory of the world, conceived of as a set of all of
the conceptual entities describing classes of objects,
relationships, processes, and behavioral norms. Often
referred to as ‘knowing that’, or declarative
knowledge.
• See Figure 12.3 for more examples.
Explicit Knowledge
Tacit Knowledge
•Procedures listed in a manual
•Knowing how to identify the
key issues necessary to solve a •Books and articles
problem •News reports and financial
•Applying similar experiences statements
from past situations •Information left over from past
•Estimating work required projects
based on intuition & experience
•Deciding on an appropriate
course of action
Figure 12.3 Examples of explicit and tacit knowledge
FROM MANAGING
KNOWLEDGE TO BUSINESS
INTELLIGENCE
From Managing Knowledge to BI
• Managing knowledge is not a new concept, but one
reinvigorated by IT.
• KM is still an emerging discipline
• Business Intelligence (BI) term used to describe the set
of technologies and processes used to describe business
performance.
– BI is a component of KM.
• Business Analytics – use of quantitative and predictive
models, and fact based mgmt to drive decisions.
• An organization’s only sustainable competitive advantage
lies with how its employees apply knowledge to business
problems
• KM is not a magic bullet.
WHY MANAGE
KNOWLEDGE?
Why Manage Knowledge?
• Information and knowledge have become the
fields in which businesses compete.
• Several important factors include:
– Sharing Best Practice
– Globalization
– Rapid Change
– Downsizing
– Managing Information and Communication Overload
– Knowledge Embedded in Products
– Sustainable Competitive Advantage
– Figure 12.4 summarizes these trends.
Sustainable Competitive
Advantage
•Shorter life-cycle of innovation
•Knowledge as an infinite resource
•Direct bottom-line returns Managing Overload
Sharing Best Practices •Inability to assimilate knowledge
•Avoid “ reinventing the wheel” •Data organization and storage
•Build on previous work is needed
Downsizing Globalization
•Loss of knowledge Why Manage •Decreased cycle times
•Portability of workers Knowledge? •Increased competitive pressures
•Lack of time and resources •Global access to knowledge
for knowledge acquisition •Adapting to local conditions
Embedded Knowledge Rapid Change
•Smart products •Avoid obsolescence
•Blurring of distinction between •Build on previous work
service and manufacturing firms •Streamline processes
•Value-added through intangibles •Sense and respond to change
Figure 12.4 Reasons for Managing Knowledge. ©IBM Global Services
Sharing Best Practices
• Sharing best practices means leveraging the
knowledge gained by a subset of the
organization.
• Increasingly important in organizations who
depend on applying their expertise such as
accounting, consulting and training firms.
• KM systems capture best practices to
disseminate their experience within the firm.
• Problems often arise from employees who may
be reluctant to share their knowledge (managers
must encourage and reward open sharing).
Globalization
• Historically three factors, land, labor and
capital were the key to economic success
• Knowledge has become a fourth factor.
• Knowledge-based businesses can grow without
traditional land, labor, and capital requirements.
• Key competitive factor will be how well an
organization acquires and applies knowledge.
Other factors
• Rapid change: firms must be nimble and adaptive to
compete
• Downsizing: sometimes the wrong people get fired when
creating a leaner organization
• Managing Info and Comm Overload: data must be
categorized in some manner if it is to be useful rather than
overwhelming
• Knowledge Embedded in Products: the intangibles
that add the most value to goods and services are becoming
increasingly knowledge-based
• Sustainable Competitive Advantage: KM is the way
to do this. Shorter innovation life cycles keep companies
ahead of the competition.
KNOWLEDGE MANAGEMENT
PROCESSES
Knowledge Management
• KM involves four main processes –
– Generation – all activities that discover “new”
knowledge.
– Capture – all continuous processes of scanning,
organizing, and packaging knowledge after it has
been generated.
– Codification – the representation of knowledge in a
manner that can be easily accessed and transferred.
– Transfer – transmitting knowledge from one person or
group to another, and the absorption of that
knowledge.
Knowledge Generation
• Concerns the intentional activities of an
organization to acquire/create new knowledge.
• Two primary ways are knowledge creation and
knowledge sharing.
• Methods include:
– Research and Development
– Adaptation
– Buy or Rent
– Shared Problem Solving
– Communities of Practice
Shared Problem
Solving
Buy or Rent Creating (R&D)
KNOWLEDGE
GENERATION
Communities of
Adaptation
Practice
Figure 12.5 Knowledge Generation Strategies
Research and Development
• Knowledge generated by R&D efforts frequently
arises from synthesis
• Synthesis brings disparate pieces of knowledge
together, often from extremely diverse sources,
then seeks interesting and useful relationships
among them
• Realizing value from R&D depends largely on
how effectively new knowledge is communicated
and applied across the rest of the firm
Adaptation
• Adaptation is the ability to apply existing
resources in new ways when external
changes make old ways of doing business
prohibitive
• A firm’s ability to adapt is based on two
factors: having sufficient internal resources to
accomplish change and being open and
willing to change
Buy or Rent
• Knowledge may be acquired by purchasing it
or by hiring individuals, either as employees
or consultants, who possess the desired
knowledge.
• Another technique is to support outside
research in exchange for rights to the first
commercial use of the results
Shared Problem Solving
• Also called “fusion,” shared problem solving
brings together people with different
backgrounds and cognitive styles to work
on the same problem
• The creative energy generated by problem-
solving groups with diverse backgrounds
has been termed “creative abrasion”
Helping Fusion Work
• Ideas that help fusion work effectively
include:
– (1) fostering awareness of the value of the
knowledge sought and a willingness to invest
in it;
– (2) emphasizing the creative potential inherent
in different styles of thinking and viewing the
differences as positive;
– (3) clearly specifying the parameters of the
problem to focus the group on a common goal
Communities of Practice
• Achieved by groups of workers with common
interests and objectives, but not necessarily
employed in the same department or location,
and who occupy different roles on the
organization chart.
• Workers communicate in person, by telephone
or by e-mail to solve problems together.
• Communities of practice are held together by a
common sense of purpose and a need to know
what other members of the network know
Knowledge Codification
• Knowledge must be used or shared to be
of value.
• Codification puts the knowledge into a
form that makes it easy to find and use.
• It is difficult to measure knowledge in
discreet units (since it changes over time).
• Knowledge has a shelf life.
Four Basic Principles of
Knowledge Codification*
1. Decide what business goals the codified
knowledge will serve (define strategic
intent).
2. Identify existing knowledge necessary to
achieve strategic intent.
3. Evaluate existing knowledge for usefulness
and the ability to be codified.
4. Determine the appropriate medium for
codification and distribution.
*Davenport and Prusak (1998)
Knowledge Capture
• Knowledge capture takes into account the
media to be used in the codification process.
• The 3 main knowledge capture activities are:
• Scanning (gather “raw” information) – can be
electronic or human.
• Organizing (move it into an acceptable form) –
must be easy for all types of users to access.
• Designing knowledge maps (providing a guide for
navigating the knowledge base)
Organizing Knowledge
• Folksonomies – site for collaboratively creating
and managing tags for annotating and
categorizing content.
• One scheme for categorizing knowledge uses
four broad classifications (Ruggles 1997):
– Process knowledge – best practices, useful for increasing
efficiency.
– Factual knowledge – easy to document; basic information about
people/things.
– Catalog knowledge – know where things are; like directories of
expertise.
– Cultural knowledge – knowing how things get done politically and
culturally.
Designing Knowledge Maps
• A knowledge map (see figure 12.6) serves as
both a guide to where knowledge exists in an
organization and an inventory of the
knowledge assets available.
• A knowledge map can consist of nothing more
than a list of people, documents, and
databases telling employees where to go
when they need help.
• Provides access to resources that would
otherwise be difficult or impossible to find
• Can capture tacit knowledge through
narratives.
– Good stories are effective for knowledge transfer.
Figure 12.6 Contents of knowledge maps
Knowledge Transfer
• Nonaka and Takeuchi’s Knowledge Transfer
describe four different modes of knowledge
conversion (transfer):
• Socialization: from tacit knowledge to tacit
knowledge
• Externalization: from tacit knowledge to explicit
knowledge
• Combination: from explicit knowledge to explicit
knowledge
• Internalization: from explicit knowledge to tacit
knowledge
COMPETING WITH
BUSINESS ANALYTICS
Business Analytics
• Companies find success through better use of
analytics.
• Many companies offer similar products and user
comparable technologies.
• Business processes are among the last
remaining points of differentiation.
• They fuel fact-based decision making.
Business Analytics
• Davenport and Harris suggest that companies
who are successful competing with business
analytics have these five capabilities:
– Hard to duplicate
– Uniqueness
– Adaptability
– Better than competition
– Renewability
COMPONENTS OF
BUSINESS ANALYTICS
Component Definition Example
Data Repository Servers and software used to store data Data warehouses
Software Tools Applications and processes for statistical Data mining process;
analysis, forecasting, predictive modeling Forecasting software
and optimization. package
Analytics Organizational environment that creates Reward system that
Environment and sustains the use of analytics tools encourages the use of the
analytics tools; willingness
to test or experiment
Skilled Work Work force that has the training, Harrahs and Capital One
Force experience and capability to use the have such work forces
analytics tools
Figure 12.8 Components of Business Analytics
Components of Business Analytics
• Data repositories - data warehouses
sometimes serve as repositories of
organizational knowledge.
• Software Tools – data mining is used to
analyze data in the data warehouse looking for
“gems”.
– Four categories of tools used:
• Statistical analysis
• Forecasting/extrapolation
• Predictive modeling
• Optimization
Components of Business Analytics
• Analytics Environment – alignment of corporate
culture.
– Incentive system
– Metrics used to measure success of initiatives
– Processes for using analytics
• Skilled work force – experts are needed.
– Managers must set the example (CEO-level
sponsorship).
– Require decisions be made using analytics.
CAVEATS FOR MANAGING
KNOWLEDGE
Caveats for Managing Knowledge
• KM and BI are emerging disciplines
• Competitive advantage increasingly depends on
knowledge assets that are hard to reproduce, so
it is sometimes in the best interests of the firm to
keep knowledge tacit, hidden, and
nontransferable
• Knowledge can create a shared context for
thinking about the future, not to know the future,
but rather to know what projections influence
long-term strategy and short-term tactics
• The success of KM ultimately depends on a
personal and organizational willingness to learn
FOOD FOR THOUGHT:
BUSINESS
EXPERIMENTATION
Business Experimentation
• Thomke discusses business experimentation as a
means of innovation.
• Products and services are created and improved
using analytics through a process of
experimentation.
• Companies who excel are able to create new
products and services at a fraction of the cost of
others.
• Capital One is built around this methodology.
• Ran 1,000s of experiments on their bank’s
customer database to test and develop new
ideas.
Business Experimentation
• Capital One had the following results:
– Increased business savings retention by 87%
– Lowered the cost of acquiring new accounts by 83%
• It is a concept of test and learn.
– Projects are managed as experiments.
– Projects are designed with a series of rapid iterations.
• Both Harrah’s and Capital One have built a core
competency in business experimentation and
analytics.
Summary
• KM is related to information systems in three
ways: IT makes up its infrastructure, KM makes
up the data infrastructure for many IS and apps,
and KM is often referred to as an app of IS.
• Data, information, and knowledge should not be
seen as interchangeable.
• The 2 kinds of knowledge are tacit and explicit.
• Manage knowledge carefully, there are many
valid and of course legal reasons.
• KM projects can be measured using project-
based measures.
