Developing a Knowledge Management Metric Model Based on Balanced Scorecard Methodology: An Exploratory Study

This article first introduces balanced scorecard as an overall methodology for KM measurement through reviewing common approaches of knowledge management performance measurement. Then a knowledge management metric model will be developed based on
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  www.management-journal.com The International  JOURNAL of  KNOWLEDGE, CULTURE& CHANGE MANAGEMENT Volume 8, Number 4 Developing a Knowledge Management MetricModel Based on Balanced ScorecardMethodology: An Exploratory Study Mostafa Jafari and Jalal Rezaee Nour     THE INTERNATIONAL JOURNAL OF KNOWLEDGE, CULTURE AND CHANGE MANAGEMENT http://www.Management-Journal.com First published in 2008 in Melbourne, Australia by Common Ground Publishing Pty Ltd www.CommonGroundPublishing.com. © 2008 (individual papers), the author(s) © 2008 (selection and editorial matter) Common Ground  Authors are responsible for the accuracy of citations, quotations, diagrams, tables and maps.  All rights reserved. Apart from fair use for the purposes of study, research, criticism or review as permitted under the Copyright Act (Australia), no part of this work may be reproduced without written permission from the publisher. For permissions and other inquiries, please contact <cg-support@commongroundpublishing.com>. ISSN: 1447-9524 Publisher Site: http://www.Management-Journal.com THE INTERNATIONAL JOURNAL OF KNOWLEDGE, CULTURE AND CHANGE MANAGEMENT is a peer refereed journal. Full papers submitted for publication are refereed by Associate Editors through anonymous referee processes. Typeset in Common Ground Markup Language using CGCreator multichannel typesetting system http://www.CommonGroundSoftware.com.  Developing a Knowledge Management Metric Model Based onBalanced Scorecard Methodology: An Exploratory Study Mostafa Jafari, Iran University of Science and Technology (IUST), Narmak, IRAN(ISLAMIC REPUBLIC OF)JalalRezaeeNour,IranUniversityofScienceandTechnology(IUST),Narmak,IRAN(ISLAMIC REPUBLIC OF)  Abstract:ThisarticlerstintroducesbalancedscorecardasanoverallmethodologyforKMmeasurementthroughreviewing common approaches of knowledge management performance measurement. Then a knowledge management metric model will be developed based on balanced scorecard method to measure performance of knowledge management strategies. Inthismodel,therequiredcontextwillbepreparedfordeployingandmeasuringperformanceofknowledgecreatingstrategiesbasedonfourbalancedperspectiveofknowledge.Thedescriptiveandanalyticalapproachdeterminedfourissuesasbalanced dimensions in the knowledge management metric model. These balanced dimensions are sympathized knowledge, concep-tual knowledge, systemic knowledge and operational knowledge. Also a methodology for creating a knowledge strategymap was developed based on these four balanced perspectives and a list was made that includes various measures in eachof the four perspectives. The identied measures and critical success factors into the four balanced dimension knowledgecan act as a guideline for KM metrics in the organizations. This helps to ensure that the essential issues are covered during designandimplementationphaseofknowledgestrategies.Thepapermaypresenthighvaluetoresearchersintheknowledgemanagementeldand to practitionersinvolvedwithKM program in the organizations.This study furtherprovidesan integ-ratedperspectiveofKMmetrics.Itgivesvaluableinformationandguidelinesthathopefullywillhelptheleaderstoconsider the important issues during performance measurement of knowledge management strategies in the organization. Keywords: Knowledge Management, Critical Success Factors, SECI, BSC, Strategy Map, Knowledge Strategy Introduction K NOWLEDGE MANAGEMENT (KM) is an integrated, systematic approach toidentify,manage,andshareallofthedepart-ment’s information assets, including data- bases, documents, policies and procedures, as wellaspreviouslyunarticulatedexpertiseandexperienceresident in individual ofcers (Jones, 2003). KM isalsoknownasasystematic,goal-orientedapplicationof measures to steer and control the tangible and in-tangibleknowledgeassetsoforganizations,withtheaim of using existing knowledge inside and outsideof these organizations to enable the creation of newknowledge and generate value, innovation and im- provement(Wunram,2000).Organizationalcapabil-ity is the sum of the specic skills, abilities, andcompetencies that characterizes the organization asa system. Organizational capability evolves fromexperience,individualskillsandabilities,structures, processes, relationships, and the shared knowledgeof the organization. Since capability resides in theorganizational system as a whole and not in specicindividuals,itisauniquecharacteristicoftheorgan-ization.Thismakesitdifculttoreplicateelsewhereand thus, becomes one of the few sources of sus-tained,competitiveadvantageintoday’smarketplace(Ulrich and Lake 1991).Organizational capability is directly involved indeveloping the intellectual capital of the organiza-tions. A critical component of organizationalcapab-ility is enhancing the individual learning of organiz-ational members. This is a necessity which can berelatedtoappropriatemanagementoforganizationalintellectualcapitalandknowledge.Thiswillleadtheorganization towards a knowledge-based organiza-tion.Ifwearetocomeupwithrecommendationsfor educationalinterventioninknowledge-basedorgan-izations,it is wise rst to review some relatedtopicsconcerningthecharacteristicsofsuccessfulorganiz-ations within the knowledge industry and, indeed,within industry in general in so far as these charac-teristicsmightalsoapplytoknowledge-basedorgan-izations. A system or organization can be said to beknowledge-basedifasignicantportionofitsintern-al processes are focused on the exchange of know-ledge,thecreationandexplorationofnewsolutions,and coordination with other systems and organiza-tions. In contrast to industrial systems that producetangible outputs, the outputs of a knowledge-basedsystemgenerallyhavesignicantintangiblecompon-ents such as innovation, creativity, discovery or in- THE INTERNATIONAL JOURNAL OF KNOWLEDGE, CULTURE AND CHANGE MANAGEMENT,VOLUME 8, NUMBER 4, 2008http://www.Management-Journal.com, ISSN 1447-9524 © Common Ground, Mostafa Jafari, Jalal Rezaee Nour, All Rights Reserved, Permissions: cg-support@commongroundpublishing.com  ventiveness. In this way, KM plays a vital role in aknowledge-based organization (Jafari et al, 2007a).Effectively implementing a sound KM strategyand becoming a knowledge-based company is seenasamandatoryconditionofsuccessfororganizationsastheyentertheeraoftheknowledgeeconomy.The purpose of managing and leveraging a company’sknowledgeistomaximizethereturnstotheorganiz-ation. This means being able to measure both the principal investment and the yield from that invest-mentatregularintervals.Yet,measuringthebusiness benets of KM is currently quite difcult. Measure-ment is the least developed aspect of KM and best practicetransfereffortsbecauseoftheinherentdif-cultytomeasuresomethingthatcannotbeseen,suchas knowledge (Bose, 2004).Although a large body of literature exists onknowledgemanagementingeneral,andsuggestionshave been made to link KM to business strategy and businessperformance(DavenportandPrusak,2000;Stewart, 1997), so far not much theory has beenformedabouttherolethatmeasurementsandperform-ance indicators play in KM. Some successful KMcases exist (Shell (2001) and IBM (Gongla andRizutto, 2001)), but many organizations have stillfailed in their efforts to manage knowledge effect-ively (Choo and Bontis, 2002). Organizations haveexperimented with (IT based) instruments to stimu-late knowledge development, such as e-learningtools, portals, communities, and document manage-ment systems. Despite promising ndings, know-ledge managers need more insight in processes of knowledge development to determine the businessvaluesofnewtechnologicalopportunities(SmitsandDe moor, 2004).KM systems must demonstrate their value.Without measurable success, managers will not beabletotellhowtheorganizationalKMsystemworks,where its bottlenecks are, and how the system could be improved. Managers, therefore, need to be ableto measure the impact of KM efforts on their organ-ization’sperformance(McInerney,2002).Standard-ized metrics are needed to quantify knowledge andto fully convince management and stakeholders asto the value of KM efforts (Wagner, 2002).Development of KM metrics has started duringrecent years and these metrics are being applied bysomeorganizations,butmoreresearchisrequiredto better dene these measures. The purpose of thisresearch is to analyze the current methods that aregenerallybeingfollowedbyorganizationstomeasurethe performance of KM strategies. The researchndings may: assist organizations in identicationthe appropriate measures for improving the qualityofmetricsusedformeasuringKMeffectiveness;andassist researchers in identication of future researchtowards the standardization of KM measurementmetrics. So the main objectives of this research areas follows:• Evaluation of existing models for measuringknowledge management strategies;• Developing balanced scorecard model for Knowledge management strategies in combina-tion with “knowledge creating cycle” proposed by Nonaka and Takeuchi (1995); Knowledge Management For understanding of the knowledge, it is importanttoexpressthemeaningofdataandinformation.Datameansasetofdiscreteandobjectivefactsconcerningevents. Information is data with attributes of relev-ance and purpose, usually having the format of adocument or visual and/or audible message. Know-ledge is linked to the capacity for action. It is intuit-ive, thereforehard to dene.It is linkedto the users’values and experience, being strongly connected to patternrecognition,analogiesandimplicitrules(Joia,2000). Following Polanyi (1966) we distinguish betweenexplicitknowledgewhichcanbeexplicated(e. g. in the form of models, theories, methods andtechniques) and documented on media (such as pa- per, audio tapes, video tapes, hard disks, or white- boards)ononehandandimplicitortacitknowledge,that is bound to an individual’s specic experience, personal background, value system, methods of learning, and ways of interacting with individuals,on the other hand.In this way KM can be dened as the process of managing knowledge and expertise in the organiza-tion in a way that facilitates identication, capture,codication, storage and sharing the knowledgewhich accelerates knowledge creation towards thestrategies of the organization (Jafari et al, 2007b).In the most resources, KM process consists of dis-cussed four major stages, and the fth stage that can be named measurement, omitted from KM processmajor stages (Bose, 2004). Furthermore knowledgestrategy includes considerations about the futureknowledge needs and a plan for lling the gaps betweencurrentknowledgeandrequiredknowledge.Knowledge needs here may refer to the knowledgeresources and desired knowledge for organization.Bloodgood (2001) suggests three general KMstrategiesasknowledgecreation,knowledgetransfer and knowledge protection; while Wiig (1997) be-lieves in 5 KM strategies: knowledge creationstrategy, knowledge transfer strategy, knowledgestrategy as business strategy, intellectual asset man-agement strategy and personal knowledge strategy.Eachofthesestrategiesabovehasitsownadvantageand disadvantage, but the knowledge creationstrategyistheperquisiteoftheothers.Soweconcen-trate on this type of strategy in this research.THE INTERNATIONAL JOURNAL OF KNOWLEDGE, CULTURE AND CHANGE MANAGEMENT,VOLUME 820  In their book “  Knowledge creating company ” Nonaka and Takeuchi (1995) stated that the interac-tion between tacit and explicit knowledge createsnew knowledge. From this viewpoint knowledge iscreatedinacontinuouscycleofsocialization,extern-alization, combination, and internalization (gure1). Socialization is the process of creating new tacitknowledge,suchassharedmentalmodelsandskills,outofexistingtacitknowledgethroughsharedexper-iences. The resulting tacit knowledge is also called“sympathized knowledge”. Externalization is the process of converting tacit knowledge into explicitknowledge (called “conceptual knowledge”), suchas metaphors, analogies, concepts, hypotheses, or models. Combination converts explicit knowledgeinto more complex and systematic sets of explicitknowledge,called“systemicknowledge”.Examplesof such a conversion process are sorting, adding,combining, and categorizing explicit knowledge.And nally Internalization is the process of turningexplicit knowledge into tacit knowledge. Internaliz-ationproduces“operationalknowledge”,forexample by training (Smits and De moor, 2004).Figure 1: SECI Model Adapted from Nonaka and Takeuchi (1995); Smits and De moor (2004) Research Methodology Each research has its characteristics that helps theresearcher to select an appropriate methodology for it. Based on the points discussed above, the authors’recentresearchesonKM(AkhavanandJafari,2006;Akhavan et al., 2006; Akhavan et al., 2005, Jafari etal., 2007b; Jafari et al., 2007a) and applying somestatistical methods, the research structure of thisstudy has been developed on four main stages asdepicted in Figure 2.Figure 2: Research StructureIn this way, at the rst stage of this research, four general categories of knowledge managementmeasurementmethods will be introduced including:Market capitalization, Return on assets, Scorecardand Direct intellectual capital. Then with reviewingadvantagesanddisadvantagesoftheseKMmeasure-ment categories, the Scorecard category will beidentied as a suitable class. In this way, balancedscore card (BSC) method will be introduced for us-age in the rest of research. Hence, in the secondstage,theKMmetricmodel(K3M)willbedeveloped byintegratingtheBSCmethodwiththeSECImodel. NotethatintheKMmetricmodelwewanttoreplacethe traditional four BSC perspectives ((includingnancial,customers,internalprocessesandlearningandgrowth(KaplanandNorton,1996))withthefour dimension of the SECI model (including: sympath-ized knowledge, conceptual knowledge, systemicknowledge and operational knowledge (Smits andDe moor, 2004)). Then the developed model needstodescribeinanexplanatorymannerwithsomecasestudies in each phases.Finally, the results of research will be concludedin the end part and further studies will be proposedfor all KM interesting organizations. PerformanceMeasurementMethodsfor KM Strategies The measuring approaches for KM strategies are di-vided into at least four categories based on the levelof measurement and the way of evaluation (Sveiby,2004) as: Market Capitalization (MCM), Return onAssets(ROA),Scorecard(SC)andDirectIntellectual21MOSTAFA JAFARI, JALAL REZAEE NOUR 
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