ASSESSMENT - SECTION B: STRATEGIC KNOWLEDGE MANAGEMENT

“Before we measure something, we must ask whether we understand what it is we are trying to measure.”
(Gray et al, 2015)

Name: Chishikwa Munde

Registration Number - I1812D7175060
Course Name: Strategic Systems Thinking
Code: ST4S39-V1-11941
Tutor’s name: Bernardo Batiz
Date: 15/09/2019

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Table of Contents

Introduction…………………………………………………………………………………………………...3

The Challenge of Performance Measurement.........................................................................3

Intellectual Capital and Social Network.…………….....………………………………………….6

Communities of Practice………………………………………………………………………………….8

Knowledge Management ………….………………………………………………………………….….8

Conclusion………………………………………….…………………………………………………………..9

References……………………………………………………………………………………………………10

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INTRODUCTION
Jack Welch, ex- Chief Executive Officer, General Electric (US) is quoted as saying ‘The three most important
things you need to measure in business are customer satisfaction, employee satisfaction and cashflows”
(Thompson and Martin, 2005). This can be achieved when companies ensure that their managers strategically
create an enabling environment that focuses on prioritizing performance that drives results which are measured
compared to planned goals and objectives (Cole and Kelly, 2015). Traditionally, the performance of a company
has been evaluated by financial analysis, but companies like Skandia AFS realized that the expenditure on non-
financial or intangible assets was significantly great and affected the profit margins which did not reflect the true
net worth of the business (Edvinsson, 1997). This gave rise to Intellectual Capital that focused on measuring
human, structural and social capital contribution to the performance of the company. As companies increased their
capacity in both human and structural resources, it meant that complexity increased and need more focus on
solving problems and nurturing good ideas. This led to the ushering of Communities of Practices whose aim was
to share knowledge by tapping into different experiences and dissemination of knowledge by smaller groups or
units to the wider corporation. Knowledge was a significant source of success because human resources live with
it and have the power to store it. This means that organisations had to appreciate that knowledge needs to be
properly managed for an organisation to survive in a competitive environment.

THE CHALLENGE OF PERFORMANCE MANAGEMENT (PM)

PM is widely practiced by all organisations in both private and public institutions, and the processes in the current
years have been appreciated as delivering increased jointed and constant approaches to the supervision of
performance as opposed to preceding insufficient remote methods of rating (Armstrong, 2009). Armstrong (2009)
further states that PM typically emanates from management by contract and not by command and has been defined
differently depending on the level of evaluation on the organisation or its people (Cole and Kelly, 2015). PM is
defined by Aguinis (2009) as an ongoing process that identifies, measures and develops the performance of people
and groups, and match performance with the company’s strategic goals. It is also defined by Armstrong (2009
p.618) as “a systematic process for improving organizational performance by developing the performance of
individuals and teams. It is a means of getting better results by understanding and managing performance within
an agreed framework of planned goals, standards and competency requirements”. It was further mentioned by
Weiss and Hartle (1997) as a process that requires managers that will contribute to the success of the company by
understanding the desired objectives of the organisation and how these will be attained with the human resources
that are available.

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Johnson et al (2014) believe in the need of changing strategy into action, to achieve a viable competitive
advantage that is highly dependent on the capabilities that are implanted in the knowledge, talents, and practices of
individuals in the company. The success of the strategy will rely on these individuals delivering on their identified
goals by executing all series of activities designed to ensure that the company gets the performance it desires. In
the banking industry, once the country has received the overall strategy and defined objectives from Group Level,
they share these within-country with all Heads of Department who align these to their unit-level goals. These
goals are based on Behavioral Competencies; Culture; Customer Centricity and Building Strategic Relationships;
Financial Performance: Simple Cost-Effective Business and Digital Transformation; and Optimal Risk
Management. The alignment of these country goals to group goals improves management, association, and
motivation of employees (Cole and Kelly, 2015).

Brown (1996, p.161) argues that developing a mission and vision statement in a company is not enough to
transform or improve it but requires other changes to happen. These may include introducing indicators and
measurements to the set goals so that they are translated into meaningful information that pushes performance.
Cole and Kelly (2015 p.39) describe the parameters that are used to measure distinct corporate goals as Key
Performance Indicators (KPIs), while Brown (1996) further suggests that managers must classify key success
elements that must be prioritized to survive the competition. In the bank, once the goals are shared with each unit,
the manager contracts the employees to goals that are aligned to numeric budgets and non-numeric items like
behavior. These goals are agreed and signed at the beginning of the year for review half-yearly and the end of the
financial year. This is similar to Peter Ducker (1954) in his book, ‘Principles of Management’ and mentioned by
Cole and Kelly (2015 p.223), that the term of Management by Objectives suggests that the performance of staff
must be compared against standards sets after sharing agreed goals and measurements. The process of review is
carried out in what is referred to as a Performance Appraisal (PA).

Armstrong (2009 p. 618) defines PA “as the formal assessment and rating of individuals by their managers at or
after a review meeting. It has been discredited because too often it has been operated as a top-down and largely
bureaucratic system owned by the HR department rather than by line managers”. Nevertheless, PA is a key part of
PM because it assists the employees to improve on their job performance. This is important because the appraisal
process determines how well the employee does their job in comparison to set standards and thereafter the
information is given to them on their performance and development (Cole and Kelly2015). The performance
criteria vary depending on the type of job, and Cole and Kelly (2015) suggest that usually, the common
performance measures include; qualitative, quantitative, accomplishments, efficiency, effectiveness, and
teamwork. Employees are obliged to understand how their performance is being measured which means they must
know the different PA methods adopted by different companies, though some of them are not useful and may have

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drawbacks. Additionally, the major concern is that the infrequent time intervals when carrying out appraisal
permits for delayed feedback that can hurt the employee (Robbins et al, 2018).

Types of Performance Appraisal Methods: as described by Robbins et al (2018)

 Graphic Rating Scale – These are common in performance evaluations because they are easy to develop
and provide a uniform set of criteria to evaluate the job performance of different staff. They are
quantitative and managers mark staff performance on a continuum indicating from low to high and the
rating scale can be defined alphabetically or numerically and even verbally i.e. exceptional, well balanced,
barely effective and unacceptable performance (Armstrong, 2009). The bank has evolved over the last 8
years from using numeric ratings to now verbal ratings. The disadvantages are that it does not give
adequate evidence on job behaviour; Separate traits or goals are grouped, for example as mentioned above,
Financial Performance: Simple Cost-Effective Business and Digital Transformation are put under one box,
yet they have diverse parameters of measure. Lastly, the rating scale is highly subjective the descriptive
words may have different meanings to different raters hence making it difficult to accomplish uniformity
(Armstrong, 2009).
 BARS (Behaviourally Anchored Rating Scale) - This is designed to assess individuals’ actions instead of
personal attributes or characteristics. The evaluator puts the effectiveness of specific job behaviours and
fits it to a scale (Robbins et al, 2018). The drawback of this method is that it is time-consuming and
requires too much effort because of the many appraisal forms needed to accommodate different types of
occupations in the company.
 Critical Incident – Requires the evaluator to keep a record of both favourable and unfavourable actions
performed by the staff during the rating period related to authentic critical incidents (Armstrong, 2009).
According to Robbins et al (2009), a critical incident is time-consuming and lacks quantification. In the
bank, this may not be used but the closest to it that when a critical event happens to an employee, they are
issued a warning letter that disadvantages them from getting any financial rewards or salary increments.
 360 Degree Appraisal – according to Armstrong (2009) staff performance feedback is evaluated and
provided by various people that include; supervisors rating employees, employees rating supervisors, team
members rating each other, employees rating themselves or contributions from different stakeholders like
customers. At the bank, the staff members will first rate themselves, their supervisors will either agree or
disagree to the rating may adjust the rating upwards or downwards. The rating is again subjected to a third
stage in which a moderation team listens to the supervisors final rating and justification. The moderation
team can also challenge the rating so that similar performance standards are applied when compared to
other team members doing the same job. This is often referred to as calibration and even though it is a

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 lengthy process it is probably the best method of reaching realistic uniformity because the evaluators have
knowledge on other staff members through common work environments and interactions and experiences.
This is similar to the Complex Adaptive Systems that are described by Mitleton-Kelly (2001) who see
complex systems as factors that are interconnected by relationships within the organisation or with the
organisation and its environment. The most common drawback is that ratings can be inflated when the
sources know that their input will affect someone’s career development and compensation.

PA as a method of PM has two critical uses that include making decisions on staff compensation and other
administrative matters; and developing employees by coaching, training, planning future opportunities and
career guidance. Henderson (2006) suggests that developing a proper and valuable compensation system is a
significant part of the Human Resource Management process. The adoption of the compensation system that
influences pay adjustments and rises according to Robbins al et (2018) will help retain knowledgeable and
talented employees that drive growth for the business.

INTELLECTUAL CAPITAL AND SOCIAL NETWORKS

Having looked at how performance is measured with emphasis on the employee in the organisation, is it also
important to understand that organisations are not only concerned with individuals but focuses on other intangible
assets that grow the organisation. This is often referred to as Intellectual capital (IC) or interchangeable known as
Intangible Resources that are described by Johnson et al (2008, p.96) to “include patents, brands, business
systems, and customer databases”. In an environment where knowledge base is prioritized, IC becomes an
important asset to a company. This is the reason why companies like Skandia AFS developed a department
specifically for IC because it realized that for business to grow, they needed to develop services that required
knowledge base (Edvinsson, 1997).

Skandia defined IC as “the possession of knowledge, applied experience, organisational technology, customer
relationships, and professional skills that provides Skandia AFS with a competitive edge in the market”
(Edvinsson, 1997, p. 368). This is similar to Porter’s (1996) understanding of strategy is a differentiator in the
market where a company offers unique value to their customers and that this value cannot be imitated by
competition. In the same way, for Skandia to attract investors to their business, they needed to reveal the
company’s full value that encompassed intangible assets supplementing the financial assets that were easily
measured and valued. After stock-taking the hidden values in Skandia, it was realised that these items were too
many and so needed to be grouped. This led to a new definition of IC as Human Capital combined with Structural
Capital (Edvinsson, 1997, p. 368). According to Choong (2008, p .622), several researchers have attempted to

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group intangible assets into smaller categories and has sighted the categorization by Marr and Adams (2004) to
consist of the three-group structure:
(1) human capital (HC);
(2) organizational (or structural) capital (SC) ; and
(3) relational capital

According to Cole mad Kelly (2015, p. 175), HC consists of several intangibles and includes cultural and social
capital. HC also encompasses employee’s skills, knowledge, talents ,and qualities of their character. The
measurement of HC is dependent on various factors and may differ from one organisation to another, however,
common measures are based on expenditure on training and development; demographic statistics such as age, sex
or culture; and talent development and knowledge (Cole and Kelly, 2015). The impact or outcome that these
measures will have on performance is what is considered valuable.

SC is the knowledge that the company holds and is often stored electronically, physically and this information is
owned by the company (Youndt, 2000; Edvinsson and Malone, 1997). The security of these systems is dependent
on how human capital safeguard the use of these resources because a system can only be operated by human
intervention in the same way that physical data is kept under security using a manual process that is operated by
individuals. This is similar to Wilson’s (2001) thoughts in this book ‘Soft Systems Methodology’ that even though
companies may have similar business structures, their complexities are differentiated by the uniqueness of their
staff and the characteristics they hold which are easily measured. The exposure of systems and data to human
intervention has made the bank to come up with prevention measures that protect these assets against loss and
damage. According to Chaffey et al (2003, p. 636), “the most common threats on electronic systems include
accidents, natural disasters, sabotage, vandalism, theft, unauthorized use and computer viruses”. To mitigate these
threats the bank has backup systems that sit with other institutions and recently all systems are now operating on
the cloud which is less vulnerable to cybercrime. Other measures include user passwords, encryption, security
policies, governance on uses of information systems and user validation (Chaffey, 2003).

SC is a part of IC and comprises of the knowledge gained from internal and external network relationships of the
company (Armstrong, 2009). Armstrong (2009 p. 68) has sighted Putnam (1996) to define social capital as “the
features of social life networks, norms, and trust that enable participants to act together more effectively to pursue
shared objectives”. It focuses on the need to share information through communication with people and these
interactions drive changes in IC (Bontis et al, 1999).
The development of intangible assets to supplement financial assets in the performance of the organization meant
that organizations adopt a measuring method that was established by Kaplan and Norton (1996) as the balanced

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scorecard. This balanced scorecard included financial measures i.e. functioning measures, focusing on customer
fulfilment, internal activities, and the ability of the company to learn and progress (Cole and Kelly, 2015). The
bank today has adopted the balanced scorecard method and the goals as mention under the PM measures are
aligned to specific KPIs.

COMMUNITIES OF PRACTICE (COP)

We have learnt that the success of a company is mainly derived by the performance demonstrated by its
employees, their infrastructure and collaboration among themselves as they share different ideas to improve their
company. The concept of communities of practice is defined by Wenger et al (2002, p.27) as
“A unique combination of three fundamental elements: a domain of knowledge, which defines a set of
issues; a community of people who care about this domain; and the shared practice that they are
developing to be effective in their domain”.
Wenger and Snyder (2000) put forward COP as challenging for managers to adopt and manage because this is a
new concept that’s not familiar and very few companies have nurtured them which makes it difficult to integrate
them to the organisation. Nevertheless, managers that have succeeded in developing COP have gathered the right
individuals, empowered them with tools that can make them excel measured them in unconventional ways. COPs
focus on dissemination of knowledge through assemblies of individuals who share mutual interests in certain
selected fields of work (Armstrong, 2009). Wenger et al (2002) state knowledge is a key component to the success
and it must be secured at all cost given the fact that it gives companies a competitive advantage, hence it must be
organized, controlled and extended across the company. The strength of Chevon Texaco was attributed to its
adoption of COPs, and their focus for operational excellence dwelled on connecting individuals with similar
capabilities with the sole aim of sharing best practices and experiences. Wenger et al (2002) further argue that
strategically nurturing the COPs is a useful manner in treating knowledge as a valuable asset.
To give meaning to the existence of COPs, knowledge must be measured and Wenger et al (2002 p. 168) state that
it is important to measure the system in which it flows. They identified two measurable categories as; ‘telling the
story as it is’; and ‘systematicity through vigorous documentation. Stories cross knowledge systems by connecting
the activities, resources, and performance output in the community. The best way of evaluating COPs is by
storytelling as one can express the much complex problems in a relaxed environment. The second measure is to
gather subjective evidence systematically by collecting convincing stories that will capture a variety of
events communities engage in (Wenger et al 2002). At the bank, COPs are created on specific special projects for
a specific need like reducing the turnaround time on processing a contingent liability. Members of the COP share
their knowledge through their experiences. Information is collated and put into implementation.

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KNOWLEDGE MANAGEMENT (KM)
Having discussed knowledge as key to success (Wenger et al, 2002), it is important to understand what consists of
knowledge and how it can be managed. KM is defined by Scarborough et al (1999) and cited by Armstrong (2009,
p. 219) as “any process or practice of creating, acquiring, capturing, sharing and using knowledge, wherever it
resides, to enhance learning and performance in organizations” and further suggest that KM focuses on stocks and
flows of knowledge. Stocks involve expertise and programmed knowledge in electronic units, whilst flows signify
the movement of knowledge among individuals or to knowledge storage. KM is closely related with IC’s
philosophies of human, structural and social capital because these are all represented by people, the way they
obtain, transfer and spread knowledge becomes a competitive advantage for a company.

Knowledge can be described twofold as tacit or explicit according to Nonaka (1991); Nonaka and Takeuchi
(1995). Tacit knowledge is held in one’s mind and relates to Edvinsson (1997) thought that people are volatile
because they are not company property but rather rented, can move with their knowledge any time. Explicit
knowledge is collated, recorded and stored on electronic units and other company patents. The challenge that
managers must survive in this competitive environment is to convert tacit to explicit knowledge. A company is not
exempt from assessing its performance in KM and scholars like Kun Chan Lee and his colleagues in 2004
developed what was called a Knowledge Management Performance Index(KMPI) that contains five elements that
can be used to determine knowledge circulation process (KCP) as creation, accumulation, sharing , utilization and
internalization of knowledge ( Lee et al, 2004, p. 469) , and concluded that an increase in KCP efficiency results in
KMPI increase , allowing a company to become knowledge-intensive.

CONCLUSION
That the performance of an organisation depends on the success of investment towards developing human capital.
Without people, an organisation cannot exist because it’s people that drive the business through their knowledge
and capabilities that allow them to operate the systems that are available for the execution of their work.
Measuring performance both at individual and organizational levels is critical to the growth of the business
because it allows managers or owners of the business to think strategically on what factors to employ in order to
get the best quality out of employees. Performance Management, Intellectual capital, Communities of Practice and
Knowledge management are among the parameters that are used by managers to accesses the knowledge base of
an organisation and make strategic decisions on the operations of the business.

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