Chapter 2
What Is Knowledge?

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Up until now, we have been using the word “knowledge” as a generic, dictionary term, a word everyone knows and understands. We have been using knowledge in its colloquial sense—either something useful that an individual knows, or something useful that many people know in common about a particular subject and that has been collected and validated. An individual artist possesses knowledge about the use of her particular medium. The art world shares knowledge about a historic artistic style such as Impressionism or Cubism.

In business, where knowledge is a core economic asset, its meaning takes on new aspects. As an economic resource, business knowledge has value in and of itself and can add value to other existing resources. It can be acquired, developed, measured, and lost, like other tangible corporate assets. For businesses to use knowledge as they use other assets, they need to have a systematic way to define and analyze it. In this chapter, we will provide you with a definition of knowledge that fits business situations and a way to analyze its components for business use.

To help managers understand how to access the value of their company’s knowledge resources, this chapter will define knowledge in a business context and outline its dimensions. We will give knowledge a form and structure that is appropriate for the business world.

Form: What Knowledge Looks Like

Jacob Needleman, a contemporary philosopher, has developed a model of knowledge that is very useful for managing knowledge in a business context. In Needleman’s model, degrees of understanding—which we can represent as layers—constitute a pyramid of knowledge. These layers of knowledge are:

•   data

•   information

•   knowledge

•   wisdom

While these levels can be viewed and managed independently, they are more often intertwined and cumulative. Volvo, for example, possesses an enormous trove of data on how collisions affect cars and the people in them. This data can be organized in terms of information about collisions and distilled into highly valuable knowledge about building safer, more damage-resistant cars.

Understanding the differences among data, information, and knowledge—and how they connect—is very important for the business management of knowledge assets. In the following pages, we look more closely at each layer of the knowledge pyramid. (For the purposes of a business discussion about the value of knowledge, we will not maintain wisdom as a separate level, but incorporate it into the knowledge layer.)

Data

Data is the foundation of knowledge. If we imagine knowledge creation as a process (like making a cake, a car, or a book), data is the raw material extracted from the business environment— ingredients, elements, components, facts. Data can be thought of as the observable facts of a situation or the separate ingredients that make up an event. Take a sales slip, for example. The time stamp, the date, the location, the cash register, the cashier, the amount, the method of payment, the things purchased, the price of each, the total price, the store location, the tax—all are bits of data that the cash register is designed to capture every time a purchase occurs. Or suppose you are travelling by plane. On some airlines, monitors show passengers the air speed, the temperature outside, the distance traveled, and the time left until the plane lands. These are bits of data—facts about the situation. In cooking, data is the ingredients—the number of cups of flour or teaspoons of salt. In music, data could be the notes in a score— separate, intact elements that contribute to a musical composition. Each note, in and of itself, is not the music. But there would be no music without each note.

In a business setting, data can be revenue numbers, measures of cost or savings, employee turnover figures, or a vast multitude of other factual tidbits. Data enables companies to measure and assess their value and demonstrate net worth. Data is neutral. A single piece of data, or a mass of unstructured data, in and of itself, doesn’t convey any particular meaning. It is, however, the essential building block for the rest of the pyramid and provides the basis for the next level of knowledge—information. Data becomes useful when it is placed in some kind of context that turns it into information.

From a business perspective, managers need to ensure that the right data is being collected and forwarded to the right places. Data needs to be noted, checked for accuracy, tracked, and updated. A bank, for example, must be able to document and trace every change that occurs in the status of its assets and its customers’ assets. If you are an automobile manufacturer, you need to make sure that the number of parts in the warehouse matches the number of parts ordered. A hospital needs to document whether a nurse has given a patient 100 mg. of a medication, or 1,000 mg.

Information

Information adds value to data. It surrounds the data with keys or clues to the data’s significance, thereby making it usable. In fact, usability is one of the key distinctions between data and information. Information is data placed in a specific context or structured to yield order and meaning.

In music, the raw data of notes becomes meaningful information on a staff marked with a key, a tempo, and other elements of a musical score. The staff and the sequencing of the notes make the notes usable. The raw material of data has been converted into something an individual can make sense of and use to take action—in this case, think through or play a piece of music. In a business context, the conversion of data to information helps people make decisions, solve problems, or come up with valuable new ideas.

Think back to that sales slip. Each piece of data—the date, the sales tax, items purchased, the location—needs other data and some sort of larger context to acquire meaning and value. Suppose the slip was for a birthday present for your spouse. To you, the total amount spent is what matters—because you used a debit card and need to record the transaction in your checkbook or compare it with your next statement. To your spouse, the date and time are of great interest, since the purchase appears to have taken place 38 minutes before the birthday party began. To the company that manufactured the gift, several contexts could be valuable:

•   Location (How is this product selling in this zip code?)

•   Time of year (What sort of seasonal sales patterns are typical with this product?)

•   Price (What is the markup from wholesale and how does that relate to pricing strategies?)

•   Personal buying patterns (How does this purchase on this credit card compare with other purchases on it? What interests, spending levels, or other consumer habits are revealed?)

Businesses are often awash in data. But having a lot of data does not automatically produce value. Data alone is not sufficient for making correct decisions or successfully carrying out plans. If a marketing executive, sitting at her desktop computer, can instantly find out how many units of a product she manages sold yesterday, that number alone is of little value. The number’s business value increases if it is delivered alongside information about sales over the quarter, the year, and several years, along with the sales targets and whatever is known about the sales performance of competing products.

Larry Prusak and Tom Davenport in Working Knowledge state that data is converted into information by adding value to it in a number of ways. Data can be:

•   Contextualized: paired with an account of where it came from and the purpose for which it was gathered

•   Categorized: organized in terms of units of analysis or key components

•   Calculated: analyzed mathematically or statistically

•   Corrected: errors have been removed from the data

•   Condensed: summarized in a more concise form¹

Numbers organized in a spreadsheet to reveal a pattern of gains and losses over time are usable information. Inventory records that indicate how quickly merchandise is being purchased and distributed in different regions at different times of the year are usable information. Analyst reports that measure and calculate market trends and present them in the form of executive summaries are usable information—extremely valuable to business leaders who need to make informed decisions quickly.

For data to have value in a business context, it must be packaged and organized so that the recipient can make the most of it. Managers need to ensure that the data they are receiving and the data they are distributing is in a form that can be easily and quickly understood and acted upon. Information management is focused on doing just this—transforming data into a usable format. Much of the last 30 years of business computer use is the story of building applications that translate data into formats that are useful in a business context such as payroll programs, inventory management systems, and customer profile reports.

Knowledge

Knowledge is more than an accumulation of bits of information. Knowledge ultimately resides within individuals and is their application of their understanding to a set of information.

Knowledge is information that is first absorbed into and filtered through the beliefs, experiences, capabilities, and judgments of the learner, and then interpreted by that learner, and turned to productive use, action, and decision making. In our musical analogy, knowledge is the score in the hands of a talented musician who turns it into a jazz improvisation. In a business setting, a spreadsheet in the hands of a knowledgeable financial analyst can be converted into investment decisions.

The definition of knowledge as information combined with personal know-how means that, more often than not, knowledge is dynamic, fluid, ever-changing. It is expressed through use—in a moment of making or deciding or teaching or learning or changing. And while knowledge can often be captured and structured, there is much knowledge that is intuitive and mutable. Whereas data and information tend to be fixed points, at least for a period of time, knowledge is often a moving target. And in a world economy where ever-increasing change is the only constant, the ability to combine changing information with evolving know-how is the best competitive advantage.

The Three Classes of Knowledge

Understanding types of knowledge is the key to managing knowledge well. Just as data and information are more valuable when they are managed in keeping with their characteristics, so the knowledge end of the pyramid yields more business value when we see it in terms of three classes of knowledge. Each class of knowledge operates in a distinct way and requires a different set of management practices.

Expressed Knowledge— What We Know We Know

Expressed knowledge is relatively enduring and unchanging. This is knowledge that can be objectified—extracted from individuals’ unique and subjective understanding and fully and clearly expressed in words (or some other medium). A U.S. Geological Survey topographical map of a valley, for example, is a relatively objective expression of “the lay of the land.” It captures aspects of the place everyone can agree on and presents them in a format that helps people accomplish a variety of practical goals.

In the same way, the owner’s manual for your car contains knowledge, based on research and experience, that embodies best practices for maintaining your car. You can learn when to rotate your tires and change the oil and use this knowledge to your advantage. A travel guide, based on a seasoned traveler’s hands-on experience, is knowledge that has been expressed and can now be used by others. In a different medium, a robotic surgical device can be programmed to carry out some kinds of surgical moves. In this instance, knowledge is not only recorded —on the robot’s microchips—but also automated.

Expressed knowledge borders closely on information. Terms, measurements, definitions, guidelines, descriptions, and directions are typical elements of documents that express knowledge. Expressed knowledge lends itself to repetition. If a travel guide correctly explains how to get from Boston to New York by train, every person who follows its instructions should, with luck, arrive at Penn Station.

In business, expressed knowledge is captured in documents, databases, and work processes. A company’s human resources policy handbook, for example, represents the combined knowledge of human resources staff, other employees, and legal experts, codified and explained for everyday guidance. Most established companies have a vast set of expressed knowledge. New employees, on their first day, encounter expressed company knowledge through orientation programs and literature. For sales and marketing staff, a sales tracking system that retains the records of customer contacts is a vital form of expressed knowledge. In a hospital, the procedure for responding to a Code Blue situation is thoroughly documented. It has also been so well rehearsed that it is part of the operating practices familiar to all personnel. By contrast, startup companies are often too occupied with day-to-day activities to take the time to codify their knowledge. It tends to remain unwritten until a new company reaches a certain size.

Expressed knowledge is an important corporate asset. It represents “how we do things here” and what we know we know. It has practical value and profit value. Many professional services and consulting companies have codified their methodologies and have created databases of reusable knowledge assets such as strategic inventories and contract templates. The capture and reuse of these assets ensures consistency across practice areas and improves efficiency.

Managers need to pay attention to what constitutes expressed knowledge in their organizations. They need to review what practices, policies, and learnings are captured and stored in manuals and databases and on websites. Questions such as the following help in effectively managing expressed knowledge:

•   Is it current or does it need updating?

•   Is it easily accessible?

•   Is it organized so that people from different divisions and functions within the organization can use it?

•   Is it sufficient without being excessive?

•   Can it be leveraged to provide better service to customers?

Expressible Knowledge— What We Know We Know But Haven’t Noted

Expressible knowledge is what people in the organization know they know, but they can rarely tell you where to find it in a particular document or process. Expressible knowledge resembles the family secret for making that special holiday cake, handed down from generation to generation—family members just know how to make it even though the recipe has never been written down.

Expressed knowledge comes packaged in enough context or explanation so that someone relatively new can pick it up and make sense of it and use it. Anyone can pick up that travel guide and read it and use it to enhance the value of their next vacation. But not everyone can make Grandma’s holiday cake. Expressible knowledge comes without a formal wrapper and depends on the individual to provide sufficient context to understand how to put it to use.

A chemical scientist moving into a new clinical laboratory already understands basic chemistry and laboratory procedures. However, this new lab will have certain protocols and ways of doing things that are different than her previous lab. Some of these new ways will be formally codified in a manual; others will not. She brings with her sufficient background to understand what she experiences, and she learns the new ways through observation, questioning, and instruction. Everyone in the lab knows how work gets done there, and they can correct the new person if she deviates. They can point out shortcuts and describe how to get resources. In the same way, a lead salesperson who has been in charge of a major account for many years has the history of that account etched in her memory. She knows who the key buyers are, what the company’s internal landscape looks like, what their business strategy is, and what the potential resource needs will be. If you ask her, she can tell you. However, this invaluable knowledge may not be written down in a form that can easily be shared.

Both these examples illustrate a kind of expressible knowledge we call Know-What. It’s knowledge, distributed among individuals, about:

•   How things work

•   How things get done

•   What works and what doesn’t

It can be documented and codified, but often isn’t. People are too busy, or it seems just as easy to ask someone directly.

Another type of expressible knowledge is Know-Who. This is knowledge about who’s who, about expertise. Know-Who is an extremely valuable form of knowledge. This is particularly true in a knowledge economy in which information changes so quickly that it is often obsolete before it can be documented. When you work at the speed of knowledge, you may not be able to wait for the document; you may need to go to the source—the expert who either created or understands how to use the knowledge. In most companies, you find the source of the knowledge you require by trolling through your personal network. You pick a likely contact and ask, “Do you know anyone who knows anything about …?” Eventually, with good contacts and good luck, you gain access to the person with the knowledge you need. This method is familiar to all but can be time-consuming and depends to a high degree on serendipity.

Many companies are beginning to convert this intangible but expressible Know-Who into documented knowledge. They use technology-based expert network systems such as on-line white pages in which people’s formal and informal credentials can be searched. In this way you can open a database or a website and search for a particular genre of expertise from among a much broader candidate pool than is normally available to you through your own personal network.

Expressible knowledge can be written down but it can also be captured in a work process or software system. Federal Express captures its work-flow process in a proprietary technology system. Levi Strauss embeds its production and retail knowledge in a system that enables mass customization—the ability to tailor items to individual customer requirements on a massive scale. Rather than a “one size fits all” approach, Levi Strauss has a “we fit all sizes” approach. The company can then use the customer information it receives to further target markets and be even more responsive.

Managers should be particularly alert to mining for rich deposits of expressible knowledge in their organizations. This form of knowledge, when found and captured, can become a manageable corporate asset. When left unexpressed, this knowledge easily disappears as its possessors move on. This is a particular danger in an economy in which the skilled knowledge worker is an essential and scarce commodity sought by many companies. If she takes her knowledge with her when she leaves, the company loses an asset.

Inexpressible Knowledge—What We Know That Can’t Be Noted

Inexpressible knowledge is knowledge that resides inside the mind of the expert. It is knowledge that is mature and insightful. It incorporates measures of that person’s intuition, experience, talent, judgment, and expertise. The flute maker’s knowledge is largely inexpressible. A conductor’s knowledge of how to weave music and musicians together to create a symphony is largely inexpressible. A psychotherapist helping a patient to recover from some past trauma is using inexpressible experience and intuition as part of her treatment.

All of these practitioners have a solid base of theory and learning behind them. Some may be expressed. Much is expressible. However, they all add to the outcome their unique abilities, values, and innate expertise. This is the inexpressible. They may or may not be aware of the extra ingredients they are adding to the mix. And even if they could explain what they are doing, another practitioner could follow the instructions but would still be unable to mimic their effort and achieve the same results.

In a business context, inexpressible knowledge is priceless. The people who have it are often the “go to” people—those whom others would name as the expert or go to as a reliable or innovative resource. The “alpha” developer who can visualize the way through a knotty problem; the salesperson who is brought in to make the hard close; the human resources manager who is called on to help repair interpersonal damage—these people are using their inexpressible knowledge to solve problems and create possibilities.

These are the people who can be called on to respond rapidly to an urgent business need or a rapidly changing set of circumstances. In a business climate in which rapid change and unpredictability are the norms, existing polices and practices and knowledge bases may not be adequate. It is imperative to have knowledgeable resources to call on who can combine changing information with their expertise to determine the best course of action. They represent the most valuable assets a company competing in a knowledge economy can have.

In fact, increasing this know-how and spreading it widely throughout the organization is one of the most important and most urgent goals for companies. The more expertise is spread and embedded, the more people you have with expertise, the more dynamic, usable knowledge becomes part of the DNA of the organization.

Unlike expressed knowledge, which can be transmitted via documents, and expressible knowledge, which can be found and codified and then transmitted, inexpressible knowledge remains in the mind. The way to extend inexpressible knowledge is through social interaction and dialogue. Creating opportunities for collaboration and exchange builds the pathways for spreading this form of knowledge.

Managers need to foster these opportunities. IBM Research holds symposia periodically for researchers and scientists in various specialty areas. At these face-to-face gatherings, scientists from all over the world meet each other and hear formal presentations. More importantly, they meet each other informally—often in groupings that would not have occurred otherwise. These informal events act as crucibles for bringing out ideas, experiences, and problems, and for catalyzing new possibilities and combinations. One scientist describes a road block she has encountered in her research and another scientist, working on a separate project on another continent, shares how she resolved a similar problem. Both people not only learn about new possibilities, but they create the seeds for future collaboration. They may not have known of each other’s existence previously and would have had no way to stumble into each other’s work.

Some companies set up their offices so as to foster unplanned encounters and exchanges. Traditional office architecture separates people in offices or cubicles. They meet at scheduled times in large conference rooms. Now many companies are experimenting with more modular architecture, which permits greater fluidity. An e-business consulting company in Boston has designed its space to create opportunities for people to run into each other, overhear conversations, and have informal conversations. People have to walk through common areas to get to their own desks. No one has a permanent desk. Desks change owners as work assignments change. People move to a new area when they have a new project and take their file cabinet with them. In this way, the company hopes to increase the potential for cross-pollination of ideas and possibilities.

A very important way of promoting social networks in organizations is through the use of teams and communities of interest and practice. These organizational forms are essential for getting work done and for enhancing innovation. In distributed, global organizations, both these forms can operate virtually, using technology as their platform for interaction. More will be said about this in a later chapter.

Take a Moment

Take a moment to think about the knowledge requirements of your organization.

•   Think about your company’s balance of data, information, and knowledge:

—   How does the company record and store the things you need to know or could use if you had access to them? Does the knowledge material you can access come in a form you can easily use or do you have to provide structure, order, and context yourself?

•   Think about the accuracy and timeliness of your existing knowledge sources:

—   Does what you can access on databases, on an intranet, or through other means seem “after-the-fact” and hard to apply to what’s happening this month, this week, or today? Or is it often quite helpful? Do you get your best information through organized means? Or does it work better to use informal and ad hoc paths to find out what you need?

•   Think about what expertise you have within your organization that could be captured and leveraged:

—   What do you do when you need to find an internal expert? Is it easy or difficult to find someone outside the range of your usual work? Do you feel that you and your colleagues have a handle on who knows what in your company? Or does it all seem a little mysterious and hard to unravel?

•   Think about ways in which you could extend and sustain informal social networks to increase the overall “knowledge combustion” potential of your organization:

—   Is the culture of your company one that seems receptive to informal gatherings of people with shared interests? Does the technology in place support the easy creation of shared information spaces for people in specific practice areas?

•   Is your organization more data-centric, information-centric, or knowledge-centric?

—   In other words, is your company focused on collecting and storing data (like the IRS)? Or does it place a high value on codified ways of doing things and describing things (like an insurance claims office or a printing press)? Or is the expressible and inexpressible knowledge of individuals and teams its most valued asset (like a consulting firm, a software firm, or a university)?

•   What are the main expressed knowledge assets in your organization? Do these provide value? Are they being used?

—   Do you have clear guides on processes and procedures? Is useful information on customers accessible? On internal expertise? On key external partners?

•   What knowledge exists that could be captured and, if made expressible, would be able to provide significant value?

—   Would information on processes and practices be helpful? On markets? On customers? On competitors? Would you benefit from knowing more about who knows what inside your company? Or from being more in touch with the work of your team and related teams?

Recap

In this chapter, we defined knowledge as a business asset. Like other business assets, it can be acquired, developed, measured, and lost. To manage knowledge, businesses need a systematic way to define and analyze it. We provided a definition of knowledge that fits business situations and a way to analyze its components for business use. We explored three layers of understanding—data, information, and knowledge—each of which is managed in different ways. We also looked at the three forms of knowledge in business—expressed knowledge, expressible knowledge, and inexpressible knowledge—and discussed how businesses make use of each.

Endnote

¹ Bulleted text is quoted from Thomas H. Prusak and Larry Davenport, Working Knowledge: How Organizations Manage What They Know (Harvard Business School Press, 1999), 4.