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Knowledge is a noun, learning
is a verb.
By Ian Herbert - This article originally appeared in CIMA's Management
Accounting (2000) v.78 No.2 (an exam. style question is included
at the bottom along with the answer wihich appeared in v78 No.3)
As the business world becomes increasingly littered with buzzwords
and jargon, students must be careful that any terms are used correctly
when answering examination questions. This article attempts to demystify
the concepts behind some of the popular terms.
By the end of the article you should understand:
the concept of the knowledge-based corporation and the significance
of intellectual capital;
the difference between data, information, knowledge and learning;
how knowledge might be managed;
what is meant by the ‘learning organisation’;
the role of management accounting in learning.
Alright, I apologise for the title. As students of grammer would
rightly point out, ‘Learning’ as in ‘a centre of
learning’ can also be a noun. However, for the moment, let
us assume for that learning is about doing, (a process) and that
knowledge represents an accumulation of previous learning (facts,
events and experiences). In accounting terms we could say that knowledge
is an asset, a form of work-in-progress to a company.
Intellectual capital
Traditionally the value of a company’s share capital has been
largely, but not entirely, related to the net worth of its balance
sheet; assets less liabilities. Any difference between net assets
in the accounts and market capitalisation, would represent the perceived
value of non-tangible assets such as patents, brand names, customer
listings, access to scarce resources, the quality of management,
trade prospects, etc.. In recent years, the gap between balance
sheet and stock market values has widened dramatically. Nowadays,
some of the largest companies in the world have relatively few tangible
assets. The value of companies such as Yahoo, Microsoft, Vodaphone,
Amazon.com, Intel, etc. is based, predominantly, upon investor’s
perceptions of the potential of the knowledge that those companies
hold. Knowledge and skills that have been built up over time, plus
information about customers, techniques, products and markets, and
appetite for future learning. Such value is often referred to as
intellectual capital. In other words, it arises from the collective
brain power of the people that work within the organisation. Let
us now define some of the key terms.
Data, information and knowledge
Data relates to facts, events, transactions, etc. For example,
a sales invoice contains a number of data fields such as the customer’s
name and account number; the goods value; the delivery date, etc.
Information is data that has been processed in such a way that it
has meaning and relevance to the person who receives it. For example,
an analysis of sales in a certain region, is information to the
sales manager for the purpose of monitoring the performance of the
sales team. However, the distinction between data and information
can sometimes become blurred; dependent on the perspective of the
user. The regional sales figures might mean little to the Managing
Director, i.e. it is merely data, until it has been aggregated into
the company-wide picture and compared to budget, last year’s
sales and other regions. In other words, when the data has become
meaningful information to the MD.
Information can have significant monetary value. Credit referencing
agencies such as Dunn & Bradstreet, or the British company Experian,
are good examples of companies who earn money through the collection
and management of vast quantities of data about people’s financial
profiles. This data is then processed, interpreted and sold as information
in the form of credit ratings.
Knowledge is slightly more difficult to define, but is generally
taken to represent the collection of events, experiences and feelings
about an organisation’s business that helps it to rationalise
its current situation and develop plans/products for the future.
Knowledge is comprised of two elements;
a) explicit knowledge such as facts, transactions and events -
things that can be precisely and clearly expressed. In terms of
management information systems, such knowledge can be codified,
categorised and stored.
b) tacit knowledge - which is implied or inferred. It concerns the
experiences and feelings that exist in people’s minds.
If, in the example above, the regional sales are down in one month,
then further information (explicit knowledge) might be sought on
the performance of other similar regions and competitor activity.
There may be a number factors contributing to the under-performance,
such as the personal effectiveness of the sales manager and the
specific nature of the region’s markets and customers. These
factors may be much harder to express in an explicit manner. In
reacting to the situation, the Managing Director’s tacit judgement
will ultimately be based upon the context of the situation and his/her
past experience of similar situations.
Techniques and processes are also a part of the stock of knowledge
within the firm. The extent to which they can be described as explicit
or tacit depends on the extent to which each series of actions can
be defined for subsequent replication. For example, a new ore smelting
process might be defined in a manner that could be protected by
patent.(3) But an initiative to change the culture of the organisation
might be very difficult to articulate and document.
Knowledge Management
Knowledge Management is the current buzzword for collecting, rationalising,
codifying, storing and disseminating all knowledge within an organisation.
The current trend is being driven by developments in information
technology, in parallel with a realisation that knowledge is now
often the defining criteria in strategic success. Knowledge management
systems should not be seen however, as merely a case of enhancing
the technical capabilities of the existing management information
system. A key theme of many knowledge management programmes is to
turn tacit knowledge into explicit knowledge. In this respect the
real task facing management is often as much about changing the
culture of the company and consequently the attitude of individuals.
In competitive situations people have a tendency to resist sharing
information. In ascending the corporate hierarchy it is often said
that ‘knowledge is power’. These tactics may be beneficial
to individuals but are almost always destructive for the company
as a whole.
Organisational Learning
Organisational Learning is the process by which individuals, and
the organisation as a whole, develop and use their stock of knowledge.
A learning organisation is one that both teaches and learns from
itself. Or put another way, it harnesses and applies the brain power
of everyone in the organisation. It puts people and knowledge at
the centre of the organisation. The term ‘learning organisation’
was coined by Peter Senge in the early 1990s and is described in
his book The Fifth Discipline.
The process of learning can be depicted as follows:
Adapted from Kolb’s learning cycle
Let’s consider a simple example to demonstrate this process
using some of the terms above.
Plan - to get into the canteen
Action - try to push open the door
Feedback - door doesn’t move
Reflection - Hey what’s happening here?
- Questions - is canteen open? , does door open another way?
- Information search - are the lights on?, are people inside?, have
opening hours changed (see side of door)? , does the door handle
say pull?
Further action - come back later/tomorrow
- pull door open
Whatever the result, I will have learnt to apply an alternative
technique - pulling the door. Or else, I will have learnt a new
fact that will stop me wasting time in the future - the canteen
opens later/staff are all off sick.
In the case of new opening times I could choose to share my new-found
knowledge with colleagues or alternatively I could keep it to myself.
Single and double loop learning
The canteen door is a very simple example of what is called single
loop learning. The learning process starts with direct action.
Double loop learning occurs as situations become more complex or
critical, when there is a need to improve the process of experimentation
by first referring to information that already exists. For example,
before planning a new customer service system the company might
refer back to their statement of values and previous experience
of implementing similar changes before design work commences.
Capacity for learning
I said earlier that investors attempt to gauge the value of a company
from its perceived stock of accumulated knowledge. However, as the
pace of business life accelerates, a new element is now being incorporated
into valuations. This is the capacity that the company has to learn
and adapt faster than its rivals. Capacity in this case is a function
of ability and attitude.
Organisational memory refers to an organisation’s ability
to remember (store) the knowledge that it has accumulated. It also
serves as a reminder that knowledge is a perishable commodity, it
is a depreciating asset.
Management accounting and the learning organisation
Providing feedback in respect of activity is a key role of the
management accounting information system. This can be depicted across
two dimensions; firstly the level of detail provided (detail/summary)
and secondly the time frame (past/future). Comparison between plans
and actual results contributes to the process of learning as follows.
Dimensions of management accounting:
Summary
We have looked at the essential difference between knowledge as
an absolute, if poorly defined entity, and learning as a human process.
You have learnt about the key terms and concepts and should now
be able to apply your knowledge correctly when answering examination
questions.
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(1) a premium to asset values is traditionally referred to as goodwill
but this term now seems less appropriate for some of today’s
companies.
(2) the way in which the process is operated to optimise a series
of complex operations may represent tacit knowledge.
(3) Experian are apart of Great Universal Stores plc but analysts
have recently suggested that a flotation of Experian could be worth
up to £4billion.
Examination style question
Now attempt the following question before clicking
here for the answer
The Managing Director of Widget plc makes the following statement
at the monthly board meeting "our last four product launches
have been either way above or way below target performance. Each
new launch sees us making the same mistakes in market analysis,
production planning, product design, and cross company co-ordination
- are we incapable of learning anything from past experience. I’ve
read a lot about knowledge management. Shouldn’t we be putting
in such a system?"
Required:
You have been appointed as a consultant to Widget Ltd. With regard
to the issue of knowledge and organisational learning, write a report
suggesting what factors might be contributing to the planning problems
at Widget and advise the MD how the product management teams might
better learn from past experiences.
Suggestions for further reading:
Argyris, C., 1999, On Organisational Learning, 2nd Ed., Blackwell.
Bukowitz, W.R., and Williams, R.L., 1999, The Knowledge Management
Field Book, Prentice Hall.
Kolb, D. A., Rubin, I. M. and McIntyre, J. M. (1979) Organisational
Psychology: An Experiential Approach, Prentice-Hall.
Schein, E. H., 1985, Organisational culture and leadership, Jossey-Bass.
……..
Senge, P., 1993, The Fifth Discipline: The Art and Practice of
the Learning Organisation, New York, Doubleday
back to students
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