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Chapter 11 Managing Knowledge 451

For instance, having a unique build-to-order production system constitutes
a form of knowledge and perhaps a unique asset that other firms cannot copy
easily. With knowledge, firms become more efficient and effective in their use
of scarce resources. Without knowledge, firms become less efficient and less
effective in their use of resources and ultimately fail.

Organizational Learning and Knowledge Management
Like humans, organizations create and gather knowledge using a variety
of organizational learning mechanisms. Through collection of data, careful
measurement of planned activities, trial and error (experiment), and feedback
from customers and the environment in general, organizations gain experience.
Organizations that learn adjust their behavior to reflect that learning by creating
new business processes and by changing patterns of management decision
making. This process of change is called organizational learning. Arguably,
organizations that can sense and respond to their environments rapidly will
survive longer than organizations that have poor learning mechanisms.

THE KNOWLEDGE MANAGEMENT VALUE CHAIN

Knowledge management refers to the set of business processes developed in
an organization to create, store, transfer, and apply knowledge. Knowledge man-
agement increases the ability of the organization to learn from its environment
and to incorporate knowledge into its business processes. Figure 11.1 illustrates
the five value-adding steps in the knowledge management value chain. Each
stage in the value chain adds value to raw data and information as they are
transformed into usable knowledge.
In Figure 11.1, information systems activities are separated from related
management and organizational activities, with information systems activities on

FIGURE 11.1 THE KNOWLEDGE MANAGEMENT VALUE CHAIN

Knowledge management today involves both information systems activities and a host of enabling management and organiza-
tional activities.

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