Int. J. Innovation and Learning, Vol. x, No. x, xxxx 1

Copyright © 200x Inderscience Enterprises Ltd.

Use of the knowledge management framework as a tool for innovation capability audit

Roberto Biloslavo Faculty of Management Koper, Cankarjeva 5, 6000 Koper, Slovenia E-mail: roberto.biloslavo@guest.arnes.si

Abstract: As effective innovation management needs to balance efficient coordination and the proper spending of limited resources on the one hand and creative chaos on the other hand, it is of critical importance to understand the whole structure of relationships and implications of processes involved. Success of innovation processes in relation to knowledge management has become a popular research topic in the last decade. In this way, we learned that early economic-oriented insights about importance of R&D expenditure are not enough to explain the difference between innovation success and failure. It was found that more important than R&D expenditure are different factors such as people, information and communication technology, knowledge management processes, culture, organisation structure, management systems, process of assets allocation.

As theoretical and empirical work in knowledge and innovation management has brought a large number of sub-theories and fragmented solutions, it is difficult for an organisation to know how to put all the key success factors together. For this reason, I propose a holistic knowledge management framework, which in a systemic way includes and connects all relevant organisation elements and its sub-dimensions in short, middle, and long time frame. Based on this, I then developed an innovation capability audit model and a related self-assessment questionnaire.

Keywords: knowledge management; knowledge management frameworks; innovation; innovation capability audit; learning.

Reference to this paper should be made as follows: Biloslavo, R. (xxxx) ‘Use of the knowledge management framework as a tool for innovation capability audit’, Int. J. Innovation and Learning, Vol. x, No. x, pp.xxx–xxx.

Biographical notes: Dr. Roberto Biloslavo is a Lecturer in the fields of Management, Management Consulting, and Strategic Management at the Faculty of Management Koper. His work experience includes the development of executive information systems, marketing and leading small business systems. His research work focuses on knowledge management, strategic decision-making, and strategic management of professional service firms.

1 Introduction

That an organisation’s capability to innovate is of critical importance for organisation success in a complex and dynamic environment is no longer a question. Only leadership

Author: Please reduce the abstract to not more then 100 words.

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that knows how to manage disposable organisational knowledge for development of new knowledge can build a winning organisation.

In the past few years researchers in knowledge and innovation management fields have taken different approaches to explain how knowledge creation, transfer and use can contribute to better innovation performance. The main result of this research is the conclusion that product and process innovation is the result of a continuous learning process rather than a sporadic event [1]. Innovation process is a knowledge-intensive activity which is built upon the two interlinked processes of new knowledge creation (exploration) and application of disposable knowledge (exploitation). As some authors point out, superior ability of an organisation in systemic knowledge creation and management can foster the success of innovation processes [2].

As empirical findings have revealed an organisation needs richer and more continuous communication inside it and across its boundaries to share implicit knowledge, which is the basis for new knowledge creation. On the other hand, multi-project management, which organisations need in the hyper-competition environment [3], demands exploitation of existing knowledge and its effective transfer between projects. The success of this process depends on the capability of an organisation to unlearn and abolish present work routines and to learn new ones [4,5]. It then becomes clear that an organisation’s inability to connect innovation processes with knowledge management processes, disposable resources, and organisation elements prevents innovation success.

Drejer [2] identified five activities that together define innovation management: technological integration, new product development process, strategic technology planning, organisational change, and business development. On the other hand Cooper and Kleinschmidt [6] identified and described five classes of key success factors in innovation management: process, strategy, organisation, culture, and commitment. What they did not do is to explain how these elements interact with each other and on which level of organisation we need to make changes if we want to improve it. From the strategic management literature we know that time has its strategic dimension and it connects the context, content and process of strategy at various levels of analysis [7]. For this reason, I believe we need something more than a list of key success factors to help organisation in understanding its innovation capability. After the knowledge and strategic management literature review, I identified three strategic pillars of an organisation: assets, businesses, and orderliness which I divided along three time dimensions: short, middle, and long term. The three strategic pillars form an organisation’s framework where four knowledge management processes: creation, storing, transfer, and application of knowledge can evolve.

The final aim of this paper is to propose a holistic self-assessment questionnaire, which can help management to understand where their organisations actually are regarding innovation performance and key success factors. The paper is divided into three further sections. Section 2 proposes a system knowledge management framework; Section 3 presents a model and a questionnaire for an organisation innovation capability audit. Section 4 gives some conclusions and suggests directions for future research.

Knowledge management framework as a tool for innovation 3

2 System knowledge management framework

Because relational concepts are of a different logical type than concepts about things, we cannot understand some dynamic properties of a system if we divide it into smaller parts and analyse them [8]. To understand systems as a whole we need a systems approach or systems thinking, which consider the pattern of relationships between and among systems elements. As Drejer [2] proposed every approach to an understanding of the innovation management process needs to have at least three characteristics:

• it should be holistic

• it should focus on other performance criteria than just cost

• it should incorporate the human element.

As Figure 1 shows, the proposed framework consists of three strategic building blocks: assets, businesses, and orderliness, which represent both a static and dynamic view of an organisation as well the hard and soft part of it. These elements are permeated with four knowledge management processes that are based on people and technology.

Figure 1 System knowledge management framework

2.1 Knowledge management processes

The four knowledge management processes constitute a continuous knowledge cycle where knowledge learned at the individual level is transferred through socially enabled learning cycles to the group level and finally to the organisation level. The effective knowledge transfer between different organisational levels is of critical importance for an innovation process, as one of the main problems that organisations encounter is their impossibility to create double loop learning because of value, language, and perspective differences between departments involved.

The knowledge creation process inside an organisation is perceived as a dynamic interaction or ‘generative dance’ [9] between knowing and knowledge at the individual and social level, in which new knowledge is generated within the process based on an individual’s insight and social learning. This process is composed of the four distinctive

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processes of socialisation, externalisation, combination, and internalisation [10] that take place inside a micro-community or community of practices.

New knowledge that is created in the knowledge creation process needs to be then stored for later use as an organisational memory. The process of knowledge storage involves finding ways to convert documents, models, human insights and other artefacts into forms that make retrieval and transfer easy without losing the ‘true meaning’ of the knowledge [11]. With the use of information technology, organisations try to develop vast repositories of organisation knowledge about customers, projects, processes, suppliers, competition, technology, industry and the organisation’s knowledge itself.

Knowledge transfer or diffusion occurs at various levels of an organisation, for example between individuals, between individuals and groups, between groups, between groups and an organisation, and between organisations [12]. If we consider knowledge as independent phenomena from the context in which it is produced or used, then we can say that an organisation must try to transfer the right knowledge at the right time to the locations where it is needed.

Without knowledge application, all the aforementioned processes are useless. Only knowledge application can ensure that the organisation knowledge represents a viable source of competitive advantage. To be of value to the organisation’s stakeholders, disposable knowledge needs to be transformed in a lower cost structure, a larger revenue stream or both.

2.2 People and technology

Two basic elements of knowledge management are people and the element of information and communication technology. Together, they often represent the basis of argument between so-called technology (system) and human-oriented researchers. However, in the proposed framework both are considered to be of equal importance. The reason for this stance is that knowledge is inseparably linked to people; therefore, an organisation cannot create new knowledge without them. On the other hand, it is difficult for an organisation (sometimes even impossible) to efficiently use disposable knowledge without the right technology.

2.2.1 People

The literature review focuses attention on three different attributes of people as carriers of organisational human capital:

• Leadership as a capability to develop a clear vision of the present and future organisation’s needs for knowledge and being able to motivate people to learn and innovate.

• Adaptability as a capability of people to be aware of changes in the outside world that are going on now or will happen in the future and to be prepared and competent to deal with them.

• Networking as an individual capability of people to build and sustain a social network of colleagues and professional acquaintances that supports knowledge creation and sharing.

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The literature supports the idea of leadership as one of the critical factors for effective knowledge management [13–19]. The leadership of the organisation sustains the vision and mission of an organisation and supports organisational values by leading by example. Knowledge leaders encourage communication and collaboration; recognise and reward good ideas and innovations; put high emphasis on training and learning; and install a performance-based promotion system to motivate people and build trust [15,17,19].

Because knowledge can quickly become irrelevant in light of changes external and internal to the organisation, it is critical that individuals who have unique bundles of competencies can adapt their competencies to new situations as rapidly as possible. Employees’ competencies that can be considered as essential in the conception of adaptability are [20,21]:

• Capability to learn. The employee should know what, how and where to learn best. Here we do not consider just single loop learning where people perform differently without changing their mental models, but also double loop learning that manifests itself when people are capable of reconsidering their own mental models [22].

• Capability of effective decision making/problem solving. The main aspect of effective decision making is a rapid and effective recognition of relevant problems’ features and their patterns [23]. Beside this, the capability of effective decision making presupposes at least two other important characteristics. The first is a good knowledge of where to obtain the relevant information and resources required to solve the problem. The second is the notion of flexibility, as people should be capable of thinking outside the mainstream framework to solve non-routine problems.

• Task competencies. These refer to the job task competence, as well as the capability to utilise new technologies.

• Autonomy/motivation. The employee should identify him/herself with an organisation and not just as an order recipient.

As communication theory suggests, a network’s potential benefit grows exponentially as the number of nodes expand [24]. People that are capable of building a network can uncover more opportunities for knowledge creation and application, and at the same time contribute to building trust inside an organisation. This capability includes communicative and social competence. The former demands that the employee has the ability to express him/herself and be able to acquire, interpret and filter information. The latter demands that the employee knows how to negotiate effectively within groups and how to share task accomplishments. Within the whole knowledge creation process the ability to build a social network is not confined only to a socialisation process. It also plays a prominent role in justifying an initiated project when a micro-community or creative individuals have a need to persuade decision makers within an organisation to politically and economically support the next phases of their work.

2.2.2 Information and communication technology

Information and communication technology (ICT) has made it possible to preserve valuable explicit knowledge for the future and to share a considerable amount of information unconstrained by the boundaries of geography and time [25]. For an

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organisation, this means an opportunity to horizontally and vertically integrate task and data and in this way to shorten the length of the transformation cycle. The transformation cycle includes not only transformation of tangible inputs into products/services, but also transformation of intangible ideas and insights into tangible outputs. With regard to Hamel and Prahalad’s [26] claim that it is not the absolute level of knowledge a firm possesses which leads to competitive advantage, but the velocity with which it is circulated in the organisation, we can understand why ICT is so critical for knowledge management success in an organisation.

In the proposed framework information and communication technology is divided into three groups:

• Technology for knowledge codification and storage that includes different types of knowledge repositories, knowledge-based decision support systems, and training tools. Software agents which can search for information across many repositories on behalf of the user and data mining tools that help to identify new patterns in large volumes of data also belong to this kind of technology.

• Communication technology that supports knowledge transfer irrespective of its format, user operating system, or communication protocols.

• Collaborative technology that enhances person-to-person collaboration which can happen at the same or different time and in the same or different place. Collaborative technology also includes knowledge maps, which are pointers to knowledge providers inside or outside an organisation.

Which of these technologies is the most important for an organisation depends on the organisation’s context shaped by orderliness, businesses, and disposable assets. In all cases, an effective virtual ba [27] demands a congruent combination of all these factors.

2.3 Normative management

Normative management results from an organisation’s vision that defines what kind of knowledge the organisation should create and in what domain [27] or for what it must strive for in the long run. From knowledge management point of view we can say that normative management represents ‘knowing why’, which is about beliefs and values of the organisation.

Normative management consists of:

• Core assets concept that is comprised of different orientations about type of economies, internal or external supply of resources, and proportion of capital/work/knowledge as the core economic resources.

• Organisation mission that defines who and how an organisation will serve.

• Organisation culture that represents a tacit part of group knowledge developed through common shared experience.

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2.3.1 Core assets concept

The core assets concept is a totality of the main organisation orientations about its disposable assets (broadly speaking – what an organisation already has or can acquire). In other words, an organisation’s implicit idea of what will represent the basis for its competitive advantage.

An organisation’s core assets concept consists of:

• Type of economies used. In an organisation we can find one of the two types of economies. Economies of scale, which exist when an organisation can reduce the unit cost by high production volumes, or economies of scope, which exist where the same equipment can produce multiple products more cheaply in combination than separately.

• Assets source base represents an orientation to outsource some activities or functions as part of an organisation value chain or to use external sources for execution of activities in comparison with an inside orientation to make everything in-house.

• Proportion of capital, work and knowledge represents the main orientation of an organisation to use one or other type of economic resources as a basis for achieving a sustainable competitive advantage.

Economies of scale are the product of the industrial revolution, in the same way as economies of scope (and in the last time also economies of substitution) are a product of the information revolution. The type of economies that an organisation has chosen to exploit will direct the type of knowledge that it will develop and use.

As we know from contemporary studies in competitive advantage, organisations that want to achieve a sustainable competitive advantage need to focus their operations and resources on the development and sustenance of core competencies without unnecessary spending of resources on activities and functions that do not represent its core competencies. An organisation that exploits and develops knowledge presented in collaborative joint ventures, alliances and partnerships can reduce costs, improve quality and focus on the business areas that are of strategic importance for it or where an organisation is the best.

Some authors make a distinction between so-called manufacturing and knowledge companies as the representatives of industrial and knowledge economies respectively. I prefer to take a somewhat different view in which there is not such a clear distinction between one and the other but rather a preference for capital, work or knowledge intensive organisation instead. It depends upon this preference as to which kind of knowledge and knowledge management systems an organisation will develop and cultivate.

2.3.2 Organisation mission

As a narrow term organisation mission is a statement about sense of the organisation’s existence. It defines a broad direction that an organisation wants to follow in consideration of its stakeholders and a broad framework for its market oriented activities.

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Organisation mission is composed of the answers to three main questions:

• Whom do we serve as an organisation?

• What are the interests that we as an organisation want to realise?

• How will we realise the added value on the market?

The first two answers are intimately linked with organisation values, while the last one with core organisation’s capabilities. An organisation mission is important because

• It defines what knowledge will be important for an organisation in consideration of its dominant stakeholders and their needs.

• It indirectly expresses what knowledge an organisation has about its own identity and environment.

• In broad terms it expresses an organisation’s competitive orientation. In this way, an organisation mission directs a sense-making process inside an organisation that will lead the learning process of its members [28].

2.3.3 Organisation culture

Organisation culture represents a socially implicit knowledge developed through day-to-day activities and problem solving. Because organisational culture determines the kinds of knowledge sought and nurtured, and the kinds of knowledge-building activities tolerated and encouraged within an organisation [29], a significant proportion of the literature that was reviewed considers organisation culture as ‘the key’ factor for success of knowledge management initiatives [13,30–32].

Three major sub-factors of organisation culture that can be found in the literature are:

• readiness for risk-taking where risk and failures are recognised as opportunities for organisational and individual learning

• willingness for collaboration inside and outside an organisation with a clear understanding of the mutual benefit that can be achieved by a climate of openness and trust

• orientation and focus as represented by the assumption of an organisation that it controls, or is controlled by, its external environment [33].

To promote the learning process and new knowledge creation, an organisation needs to sustain a culture where calculated risk of failures is acceptable and expected, creative solutions are always considered in addition to more conventional ones, and people are given time and resources to try new things. Readiness for risk-taking changes in different contexts, but as a cultural element it strongly differentiates innovative and visionary organisations (a proactive organisation) from status-quo organisations (a reactive organisation).

Without a culture of collaboration inside an organisation, working together is either viewed as inefficient or a violation of individual autonomy. Such a culture does not promote communication between employees or reward the exchange of knowledge. In this way knowledge remains the property of an individual (expert) or a group inside an organisation and not available to the larger organisation. On the other hand collaboration

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outside an organisation represents an attempt to go beyond traditional organisational structures and boundaries in favour of the establishment of symbiotic arrangements with external partners, which can provide a mutual advantage [34].

Some organisations assume that they control their external environment and that the key to organisational success is to focus on such internal resources as people and processes. For this kind of organisation the so-called ‘technology push’ approach is typical where an organisation attempts to identify the potential of its technology for new products or processes. However, other organisations are more focused on their external environment constituents and use the so-called ‘market pull’ approach where external stakeholders’ demand drives the process of innovation, development and judgement of success.

2.4 Strategic management

Strategic management represents the link between the long-term normative management and short-term operating management. If the organisation’s vision represents an absolute or ideal standard that an organisation wants to achieve in the future and the operating management represents a historical standard that an organisation needs to improve if it wants to survive in the middle and long-term, then the strategic management represents an external standard of comparison with other organisations. The main goal of strategic management is to achieve and maintain the competitive advantage of an organisation regardless of changes in organisation environment.

2.4.1 Procurement and allocation

To successfully procure and allocate ‘knowledge assets’ an organisation needs to have a clear understanding of its disposable resources (including knowledge assets) and the future requirements of its chosen business model. Only after an assessment of the gap that exists between them will an organisation be in a position from which it can decide where and how it will procure and allocate needed assets.

Procurement and allocation as an element of the strategic management needs to consider:

• Growth orientation represents an organisation orientation to either ‘milk’ existing competencies or develop new ones.

• Procurement orientation represents an organisation orientation to use either internally or externally available assets.

• Allocation rules represent the kind of measure an organisation considers as valid for assets allocation. An organisation can use a ‘go – no go’ formula approach based on discounted cash flow method, or it can use an options finance approach with funding provided for only one stage at a time.

As we know, an organisation that operates in a simple and static environment can grow without special needs to develop new competencies. This kind of ‘status-quo’ strategy allows an organisation to take ‘less risk’ (explicitly), be more efficient because of the learning curve effect and, in the last stage, to be best fit with the external environment through continuous, small incremental changes. On the other hand this kind of strategy open an organisation to implicit risk. The first source of implicit risk is represented by

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unexpected and abrupt change in the market structure because of a new competitor, product, technology, or substitute. This kind of change demands new and different competencies that an organisation does not have and cannot achieve in a short time. The second source of risk is represented by core competencies that become core rigidities as Leonard-Barton [29] termed these. For both reasons it is better that an organisation takes a more proactive stance where it continually generates new and different competencies that can substitute or supplement the existing ones. This approach is indispensable for an organisation that operates in a complex and dynamic environment.

A procurement orientation represents the classical ‘make or buy’ decision that an organisation needs to take. This decision is not the sole result of rational economic thinking but, as I mentioned earlier, is to a large degree a function of the organisation’s culture and its core assets concept. To make or to buy represents only the extreme poles of possibilities that an organisation has in the procurement of needed resources and competencies. Paradoxically, the main point in today’s extremely competitive world is the need for cooperation in order to succeed; to ‘go-it-alone’ is no longer a suitable way to do. Besides joint ventures and strategic alliances where an organisation develops new knowledge together with other organisations, an organisation can also acquire knowledge through external R&D contracts, licences, and acquisition of organisations possessing the desired knowledge. In this way an organisation can acquire new external knowledge that can be crucial for ensuring its future competitive position.

As discounted cash flow analysis is based on how much cash flow a given product or project will yield, it is of little value when high levels of uncertainty are involved as often happens in innovation projects. On the other hand, an organisation that invests in an innovation option commits enough funding only for the first step of the project process. At the end of this stage, newly developed knowledge and understanding can help the organisation to make the best decision in either to pursue an undertaken project or to abandon it.

2.4.2 Business model

In consideration of the broader organisation’s mission, the organisation’s business model represents an explicit answer to three questions [35]:

• Who are the organisation’s target customers?

• What value does the organisation want to deliver to them?

• How will the organisation create it?

As a consequence of the above-mentioned questions, we can say that the business model involves three main elements [35]:

• customer base that defines market segments where the organisation can exploit its competitive advantage

• concept of customer value that it goes beyond ‘hard’ product or service to intangibles with a high proportion of knowledge transferred from the organisation to the customers

• value chain architecture that represents the chain of activities that an organisation needs to perform to deliver value to the customers in the most efficient way.

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The business model is the end result of the organisational intelligence activities linked with the organisation’s vision. In the process of business model development, an organisation uses its knowledge about the marketplace and its future development together with its knowledge about its own core knowledge assets. The knowledge that it uses is predominantly implicit in nature, especially if an organisation tries to change the existing rules of the game. How this knowledge is created, stored, transferred and applied will significantly impact the business model that an organisation will develop.

2.4.3 Organisational structure

Organisational structure is in some way a result of organisational culture. However, as we stated earlier, the influence between these is not one-way and a restrictive structure could inhibit a knowledge-enriching culture.

Based on Fouché and Botha [36], the structure of an organisation can be divided into the three layers of ‘network forming devices’:

• formal hierarchical structure with reporting relationships, responsibilities and accountabilities

• ‘flexible’ structure that consists of ad hoc problem-solving teams, task forces, joint planning groups etc.

• ‘hidden’ (implicit) structure that consists of informal peer groups, interest groups, professional groups and personal networks which are internal as well as external to the organisation.

In the literature, considerable evidence can be found that a formal organisation structure, which is best expressed by the degree of centralisation and formalisation, prevents effective knowledge management [37]. An organisational structure that does not preclude communication and collaboration across hierarchical and functional boundaries must be permeable in the sense of a free flow of knowledge between employees regardless their job position, job function, or any other traditional boundaries [38].

Because formal structure can inhibit knowledge flow in an organisation, it is very important how effectively the organisation employs flexible and hidden structures to facilitate the flow of knowledge. A flexible structure is composed of project teams and other task-oriented groups that can accommodate multi-disciplinary and cross-functional members. The role of a flexible structure is not just to promote more flexibility in the organisation, but also to motivate employees to develop and share their knowledge.

Hidden structures promote the exploitation of opportunities created by a workplace setting of open spaces where colocation and informal meeting places are part of daily organisational routine. This layer of structure represents the biggest share of the ‘social capital’ of an organisation as a particular combination of networks that exist inside and outside an organisation. Hidden structure has achieved more popularity in the last decade with interest developing in communities of practice, which represent informal groups that interacted and collaborated regularly around work-related issues and challenges. With the focus on communities of practice that exist in an organisation, it is possible for an organisation to promote knowledge sharing and creation, and in this way to secure a higher possibility of success of knowledge management initiatives.

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2.4.4 Management systems

The purpose of management systems in relation to knowledge management is to enable effective and efficient application of the knowledge within an organisation.

Organisation systems are composed of:

• motivational and reward system that needs to be broad enough to encourage people to learn and share knowledge with their coworkers and access knowledge that is available in the organisation information system

• planning and performance system that includes an organisation’s objectives and measures for both tangible and intangible aspects of the organisation

• information system that supports the storage and transfer of data from outside or inside an organisation.

Because the possession of knowledge is thought to give a personal competitive advantage [31], it is difficult without the right motivational and reward system to facilitate the sharing of knowledge between an individual employee and an organisation. For this reason, knowledge management literature has often emphasised that an organisational motivational and reward system needs to be made broader, encouraging people not to compete with one another but to share knowledge and to work together for creation of new knowledge [39].

I believe an effective motivational and reward system needs to make equal use of extrinsic (tangible) and intrinsic (intangible) rewards. Extrinsic motivators are above all oriented to an assessment of achievement against knowledge management objectives such as

• acquiring new knowledge

• undertaking new projects or responsibilities

• contributing to a community or team

• contributing to the development of another employee [40].

On the other hand, intrinsic motivators are based on more informal, short-term rewards that give employees a feeling of accomplishment with regard to knowledge development, creation or sharing. If we consider that intrinsic motivators lead to solutions that are far more creative than do extrinsic motivators, and the former are the most immediately affected by the environment [41], we can conclude that this area represents an important opportunity for a knowledge-oriented organisation.

In the last decade or more, attention has been oriented toward an organisation’s internal resources and capabilities and a major shift from top-down planning to bottom-up and middle-up-down strategy development has occurred [10]. Besides these changes that try to build and cultivate a more collaborative and participative environment inside an organisation, important changes have also occurred with regard to performance measurement systems. These are now more future oriented and they try to take into account the intangible assets of an organisation, such as knowledge. Even if we do not currently have a complete system for the measurement of intellectual or intangible assets [42] it can be supposed that with the further development of the above-mentioned systems or with the development of new ones, organisations will eventually obtain a tool to better manage their core knowledge assets.

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An information system encompasses much more than technology for facilitating data storage and transfer. An organisation’s information system is composed of technology, people and processes that need to be put together consistently if an organisation wants the system to be capable

• of helping people inside an organisation to identify problems and opportunities

• of storing and transferring data that reside inside or outside an organisation in a way that ensures optimal ‘intelligence density’ [43].

In addition, an effective information system identifies obsolete data and replaces it.

2.5 Operating management

Operating management represents the front stage where an organisation produces and delivers value to its customers. As modern operating management is focused on cost, flexibility, and quality at the same time, an effective knowledge management is of critical importance. Unfortunately, operating management is often neglected in the knowledge management literature with the exception of business processes.

2.5.1 Assets management

Assets management is oriented to efficient exploitation of the organisation’s disposable assets; to maintenance of the organisation’s assets in good condition in order to retain its value and its level of contribution to the achievement of the organisation’s present and future goals; and to the most suitable method of assets acquisition, in consideration of its added value to the organisation (cost, time, quantity, and quality).

Assets management consists of three processes:

• Acquisition that can be made on the one hand by buying material assets or hiring people and on the other hand by renting or leasing them. The focal point is where an organisation is oriented on just the technically or cost best solution, or where it tries to achieve the best fit between the organisation culture and processes and needed asset.

• Development of employees to their fullest potential is critical for the achievement of future goals of an organisation. Development can be oriented to learning some special skills needed for the execution of a specific operation task or to learning large system competencies that exceed operation level and support growth of the individual as a person.

• Retention consists of processes and systems that an organisation develops to prevent losing critical strategic assets. The kind of approach that an organisation will use depends on what the organisation believes best represents its strategic assets. For example, an organisation that believes that its intellectual property represents its critical assets will be concerned mainly with different kinds of legal protection. On the other hand, an organisation that believes its people represent critical assets will consider personal and interpersonal relationships very carefully to assure an optimal working environment for its employees.

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It is very important that an organisation does not consider only the expertise of an individual, the technical performance of the technology or the free cash flow of the target organisation, but also how they will fit into the existing organisation. By acquisition of the apparently best technical option without taking care to ensure the congruency of values and processes, an organisation will only diminish its wealth creation potential.

Development of employees can occur on one of the three levels of learning. The first level is typical for Taylor’s type of an organisation. Here learning is oriented only to the achievement of a static efficiency in task execution. The second level represents a step further and is more oriented to development of competencies that are not useful only in the execution of a specific task, but for different business processes and roles as well. The highest level represents learning that is not oriented just to the development of specific professional competencies but also to the development of people as human beings. At this stage, learning is oriented to the development of systems thinking competencies and values that are important for humankind as such.

Retention of critical strategic assets is a key issue for an organisation if it wants to preserve its competitive advantage. While some organisations emphasise intellectual property (patents, copyrights, …) as its strategic asset, other organisations emphasise intellectual capital (people and relationships) as a basis for the eventual development of intellectual property. As this is quite a philosophical stance for an organisation, we can see two different ways of behaving. In the first way of behaving, the organisation wants to protect intellectual property through the use of legal protection and other security systems. In the second way of behaving the organisation wants to retain intellectual capital by establishing strong value-based affiliation.

2.5.2 Business processes

Organisations not only create knowledge, they also, and usually primarily, create goods and services. In accordance with Rastogi [44]:

“the test of value creation is whether customers are willing to pay for a firm’s product(s) and or service(s) under conditions of competitive choices open to them.”

Knowledge management initiatives that do not consider the utility of knowledge for value creation from an economical point of view are completely useless and just destroy valuable organisational resources.

Operation level value activities are executed through business processes as an interrelated, sequential set of activities and tasks that turn inputs into outputs. They have a distinct beginning, a clear deliverable outcome at the end and a set of metrics that are useful to measure performance.

After Fahey et al. [45], business processes are divided into three main groups:

• product development management process that is oriented to the development of new customer solutions and/or to the improvement of existing solutions

• supply chain management process, with the purpose of acquiring inputs and their transformation into desired customer benefits

• customer relationship management process that develops and nurtures relationships with external marketplace entities.

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Knowledge integrates all three business processes into a coherent whole and adjusts them in response to external changes in order to better fulfil customers’ needs. This can be achieved by transforming marketplace data into knowledge; by transforming primarily products or services to knowledge-based ones; by employing project teams with cross-functional and multi-disciplinary members that on equal terms contribute to the development of new products, services or processes; by changing a buy-sell attitude into a customer-supplier relationship; by changing the focus from an individual process to a shared understanding of a business model; and by reconsidering an organisational value chain as a dynamic value net.

2.5.3 Operating rules

As Eisenhardt and Sull [46] point out, well-defined, simple rules are essential for an organisation’s success in today’s unpredictable world. Operating rules represent shortcut solutions to problems that the organisation has solved before. The optimal number of rules that an organisation uses can change over time as the business landscape changes [46]. In a period of predictability, an organisation uses more rules in order to increase efficiency. In a period of turbulence, it uses fewer rules in order to increase flexibility.

According to Eisenhardt and Sull [46], operating rules are divided into three types:

• how-to rules help employees to perform critical tasks for an organisation that they encounter in day-to-day activities

• timing rules help managers to synchronise their activities and decisions with other parts of an organisation

• exit rules help managers to decide when it is the right time to finish with the activities or projects that do not have prospects of success.

Operating rules are very rarely the result of careful thinking and analysis; more often they are the result of experience, especially painful ones. They are products of collective problem solving where organisational culture develops as social tacit knowledge and operating rules as social explicit knowledge.

3 Implication of the proposed framework for an innovation capability audit

To achieve a sustainable competitive advantage, an organisation needs to take a proactive stance in consideration of the competitive arena [47]. This requires that it attempts not only to improve existent business model and business processes, but also to innovate them. If that innovation happens, new knowledge needs to be created, accessed, understood, and accepted. To achieve this in an effective way, an organisation needs a proper mission, orderliness, and assets. All these elements can increase or decrease an organisation’s innovation capability. If an organisation wants to know where it is regarding its innovation capability potential, then it needs to carry out an audit which will properly include all previously mentioned organisation elements and the relationships between them.

16 R. Biloslavo

The audit model presented in Figure 2 consists of six stages. In the first stage, an organisation needs to understand what the value of its innovations is and where most of its innovations happen. In the second stage, it finds out how effective its knowledge management processes are. In the third, fourth, and fifth stages, it analyses how well elements of normative, strategic, and operating management support innovation processes. In the final stage, the organisation assesses the quality of its people and information and communication technology.

In this way the model provides the basis for a detailed audit of current innovation practice and performance. The first stage helps identify the level and type of innovation outcomes of the organisation, but it does not provide an answer why gaps exist between current and desired level of performance. This answer is provided with the next stages of the audit model together with the main orientations for action plan development.

Figure 2 An innovation capability audit model

In general, through an audit process an organisation can answer three main questions:

• Where is the organisation from the innovation point of view?

• Which areas support the innovation capability of the organisation?

• Which areas represent an opportunity for the organisation to improve?

In consideration of these questions and based on the above model, I developed a self-assessment questionnaire shown in the Appendix. The aim of the questionnaire is to allow an organisation to:

• identify the strengths and weaknesses of its innovation potential

• identify key opportunities for improvement

• benchmark its competitors

• measure the level of effectiveness of its initiated development projects

• lead planned change processes.

Knowledge management framework as a tool for innovation 17

The questionnaire can be used as a tool for a rapid assessment of the organisation innovation outcomes, knowledge management processes, and enabling organisation elements. Of course, for a detailed audit an organisation needs to conduct follow-up interviews, focus groups, and other related methods besides a careful analysis of the questionnaire.

4 Conclusion and future directions

This paper illustrated the importance of adopting a holistic organisation-wide approach to the knowledge management and enabling organisation elements as to achieve the best innovation outcomes. To understand the whole puzzle is not enough to be focused on a specific piece or some pieces. What we need is a comprehensive and systematic framework, which can paint the complete picture. The proposed framework tries to represent relevant organisation elements and processes as antecedent variables to organisation’s innovation capability.

As we know, organisations are not homogenous entities where grand theory can be put in place and everything will work. Change is difficult, even when an organisation knows that it needs it. There is abundant proof that isolated initiatives or sweeping changes cannot bring desired results. What is needed is systemic changes where step after step a more flexible and innovative organisation can be built. In the achievement of these results the proposed framework can help an organisation to understand which elements and relationships prevent or support its innovation capabilities. This knowledge then enables an organisation to leverage on the latter to improve the former.

The proposed self-assessment questionnaire should be considered a first iteration as it needs empirical verification in order to improve its efficacy in knowledge management and innovation studies. My hope is that I have presented my viewpoints and implicit hypotheses well enough to stimulate further discussion and desire for the application of the model on the part of other researchers, as in this way new knowledge can be created and transfer.

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Appendix

For the assessment I used five-point Likert scales ranging from 1 = strongly disagree to 5 = strongly agree. The final score can be calculated as an average of the sums along all identified content dimensions.

20 R. Biloslavo

Table 1 Self-assessment questionnaire

Organisation elements Content dimensions

1 Value of innovation 1.1 Business model Customer base. My organisation

redefines accepted market segmentation by uncovering hidden customer segments. Customer value. My organisation is best-in-class in every product offered. My organisation’s products represent integrated solutions with a high proportion of services involved. Value chain. My organisation has achieved dramatic gains in cost structure, asset investment, and speed of responsiveness by developing a new set of value chain activities and links between them.

□ □ □ □ □ 1 2 3 4 5

1.2 Business processes Product development management. My organisation is known as an organisation with the shortest time to market and the lowest number of ‘flops’ in the industry. Supply chain management. My organisation is known as an organisation that achieves the lowest cost and the highest quality, speed, and flexibility in the industry. Customer relationship management. My organisation is the first choice for its suppliers and customers and is known to go after the highest proportion of common projects in the industry.

□ □ □ □ □ 1 2 3 4 5

2 Knowledge management processes

2.1 Knowledge creation

My organisation is successful in. Creating new shared beliefs about cause and effect (knowledge) which are then accepted as valid and can be acted upon. Generating changes in content, degree or conditions under which already accepted beliefs are thought to be valid.

□ □ □ □ □ 1 2 3 4 5

2.2 Knowledge storage My organisation has processes for capturing and storing knowledge from employees, business partners and competitors independently of knowledge source type.

□ □ □ □ □ 1 2 3 4 5

2.3 Knowledge transfer

My organisation has processes for transferring organisational knowledge to individuals anytime and anywhere.

□ □ □ □ □ 1 2 3 4 5

2.4 Knowledge application

My organisation is able to locate and apply disposable knowledge to changing competitive conditions by making it accessible to those who need it.

□ □ □ □ □

1 2 3 4 5

Knowledge management framework as a tool for innovation 21

Organisation elements Content dimensions

3 Normative management

3.1 Mission Stakeholders. My organisation is oriented to satisfy different groups of stakeholders including employees, customers, shareholders, suppliers, and the local community.

Competitive orientation. My organisation is oriented to product leadership by continually pushing its products into the realm of the unknown, and the untried.

Business scope. My organisation is oriented to compete on a worldwide scale with a large offering of products for different customer segments.

□ □ □ □ □

1 2 3 4 5

3.2 Core assets concept

Types of economies. My organisation is oriented to exploit economies of scope based on few core products platforms that function as a base for the development of multiple complementary products.

Assets source base. My organisation outsources all activities that do not represent its source of competitive advantage.

Type of production resource. My organisation can be classified as a knowledge-based organisation, as knowledge represents its main production source.

□ □ □ □ □

1 2 3 4 5

3.3 Culture Readiness for risk-taking. My organisation recognises failures as an inseparable part of success. People are given time and resources to try new things.

Willingness for collaboration. My organisation supports and stimulates internal and external collaboration for knowledge sharing and creation.

Orientation and focus. My organisation is ‘market pulled’ where external stakeholders’ demands drive the process of innovation, development and judgement of success.

□ □ □ □ □

1 2 3 4 5

22 R. Biloslavo

Organisation elements Content dimensions

4 Strategic management

4.1 Procurement and allocation

Growth orientation. My organisation grows through the development of new products, technologies, or markets.

Procurement orientation. My organisation is oriented to exploit any externally available assets, which can give it a competitive advantage. This is pursued by strategic alliances, joint ventures, R&D contracts, licences and acquisitions of organisations.

Allocation rules. My organisation allocates its resources on a basis of contribution to competence portfolio development and flexibility of options. Innovation projects are funded on a step-by-step basis.

□ □ □ □ □

1 2 3 4 5

4.2 Organisation structure

Formal structure. My organisation has a flat structure with a low level of formalisation. A major share of decision making has been delegated by line managers to subordinate personnel.

Flexible structure. My organisation has organised work positions so that the positions enable and stimulate team working. Teams are self leading and penetrate all hierarchical levels.

Hidden structure. My organisation has a process oriented structure where groups of employees can interact and collaborate regularly around work-related issues and challenges.

□ □ □ □ □

1 2 3 4 5

4.3 Management systems

Motivational and reward system. My organisation uses a system of intrinsic rewards (recognition) that includes motivational factors for each employee irrespective of his/her position and rewards for organisation learning.

Planning and performance system. My organisation uses a scenario planning system that includes all levels of employees. Beside financial indicators, my organisation uses a system of non-financial indicators regarding customers, business processes, employees, learning and development.

Information system. My organisation equally supports top-down, bottom-up, and horizontal communication. People can express new ideas and needed information that is available to them regardless of their level within the organisation.

□ □ □ □ □

1 2 3 4 5

Knowledge management framework as a tool for innovation 23

Organisation elements Content dimensions 5 Operating management 5.1 Assets management Acquisition. My organisation makes

acquisitions primarily in consideration of how well it will fit with the organisation and not how strong they are from a technical or economic point of view. Development. My organisation has processes for human resource development that allow tailor-made solutions for the specific needs of the individual. Retention. My organisation has developed strong value based affiliation to retain its key people. Besides this, it has processes and systems to protect its sensitive data.

□ □ □ □ □ 1 2 3 4 5

5.2 Operating rules How-to rules. My organisation has clear how-to rules about critical tasks that need to be performed at operation level. Timing rules. My organisation has clear deadlines for new products and processes. Exit rules. My organisation abandons immediately any project where agreed intermediate milestones are not achieved or new acquired knowledge does not support its probability of success.

□ □ □ □ □ 1 2 3 4 5

6 Assets 6.1 People Leadership. My organisation has people

in leadership positions that know how to socialise at the peer level with their subordinates, how to inspire subordinates to learn and try, and how to combine and integrate knowledge from different experts. Adaptability. My organisation has people that are highly motivated, task competent, capable of learning and can make effective decisions. People consider changes as an opportunity and not as a threat. Networking. My organisation has people that are able to work effectively within groups, to exchange knowledge and share task accomplishments.

□ □ □ □ □ 1 2 3 4 5

6.2 Technology Technology for knowledge codification. My organisation uses different data repositories, expert systems and methods for data analysis and data mining. Communication technology. My organisation uses modern communication technology that consent to the individual to access organisation data and coworkers from anywhere anytime. Collaborative technology. My organisation uses different kinds of collaborative technology such as decision support systems, yellow pages, video and audio conferences.

□ □ □ □ □ 1 2 3 4 5