July 2013Strategy

Convert Knowledge into Profits


What do a Zen Master and a bond trader have in common? Not much, you’re probably thinking. But for Martin Ihrig they illustrate and possess different forms of valuable knowledge. Ihrig, who has helped organizations including the ATLAS collaboration at CERN identify and map their knowledge assets, notes, “The Zen Master’s knowledge is in his head. To share what he knows, you need to meet with him and speak with him personally.  He’s not unlike some of your key personnel, who have deep tacit knowledge based on experience. The bond trader on the other hand has knowledge laid out on an Excel spreadsheet. The higher degree of structure of this knowledge allows him to share it almost instantly over the Internet. His knowledge is organized much as your IP and well-documented internal manuals are.”

Ihrig stresses that trying to capture all of your firm’s knowledge, as with expensive knowledge management systems, is not necessarily the key to using it to your best advantage. “Trying to capture and manage all of it can be a pointless and expensive endeavor. It creates cognitive overload. Instead, senior leaders should focus on what is strategically relevant. What are the critical knowledge assets that will help you outdo your competition?”

Ihrig is teaching executives how to identify those assets and manage them strategically in the new Executive Education program Strategic Management of Knowledge Assets. “Right now you are using a balance sheet, which registers physical assets, to assess your performance. I am providing another performance assessment that includes key knowledge assets. We are living in an age where knowledge is the biggest driver. We know how to manage physical assets, but we’re not sure about how to manage knowledge assets.”

In the program, Ihrig uses a map (see image below) to help locate different types of critical knowledge. The map is based on Max Boisot's Information Space and the joint research work he did with Ihrig and Wharton management professor Ian MacMillan at I-Space Institute (www.ispaceinstitute.com). Ihrig distinguishes how structured (uncodified vs. codified) and how widely diffused (within the organization vs. the outside world) the knowledge is. The knowledge of the Zen Master, for example, would be in the lower left (tacit and difficult to share) and the knowledge of the bond trader in the upper right (explicit and easy to diffuse). “The map is a framework,” he says, “that takes something many people think of as elusive — knowledge — and makes it manageable. You can see what you have and determine how best to use it. That knowledge comes in different forms, including deep experience of key personnel, intellectual property, manuals, and best practices.”

Once your existing knowledge is on the map, you can dynamically and strategically decide how to use it and further develop it. You might want to keep some knowledge assets for yourself and share others. You might also identify a key piece of knowledge that is missing, an asset you could get by partnering with another firm. It has important implications for IP strategies, open innovation initiatives, and strategic alliances.

Adobe Systems, says Ihrig, is one historical example of how a company can use their knowledge assets strategically for competitive advantage. As computing and the Internet grew in the early 1990s, they saw an opportunity to develop a file-sharing format that would retain a document’s text, fonts, images, and other graphics no matter the operating system, hardware, or software used to send and view it. Adobe was among the first to develop the idea behind PDF (lower left quadrant), and then structured that knowledge in the form of the PDF Writer and Reader (moving into the upper left quadrant). But notably, it first shared the Reader and made it available for free on the Internet (upper right quadrant) thereby creating demand for the Writer. Although the company released ownership of the standard in 2008, the writer (at $300 and up) was free from competition for years and remains Adobe’s largest product.

“Every company can benefit from thinking strategically about how to leverage its network of knowledge assets,” says Ihrig. “Once you identify your critical assets and map them, you can build a strategy around them. Your network of knowledge assets can become a key source of competitive advantage. But you need to know what the assets are — and where they are — first.”

Portfolio of Knowledge Assets