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The Importance of Knowledge Management as an Asset

Paper Type: Free Essay Subject: Business
Wordcount: 1890 words Published: 1st Jan 2015

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At present day market, there are some companies such as: Microsoft, Apple, Ford, McDonald’s and Toyota which are very successful and have existed in business for many years. In order to have these achievements, they had effective knowledge management during the production process. Knowledge management is very important for many businesses because it brings profits, good revenue, intellectual human resource and firm operation process. Beside that, knowledge is always a potential value in each person and supports human in work and life. To more understand about the importance of knowledge management, benefits of knowledge, the nature of information and knowledge, knowledge management life cycle and the value of knowledge management in competitive advantage, the following factors will explain and prove how effective knowledge management is valuable to organization and how it supports managerial practices.

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The nature of information and knowledge

(Becerra- Fernandez I, Gonzalez A, Sabherwal R, 2003) Knowledge ranks at the highest level in comparison with information at the middle level and data’s level to be the lowest. It is distinguished from data and information and defined as justified beliefs. In addition, Knowledge is describing about information, analyzing documents to make decision, taking knowledge from experience, collected information by situations and circumstances. Among three terms, knowledge is considered as the richest, deepest and the most valuable. Beside that, data includes numbers, facts, or personal information. For example, in a class of Raffles University, we count one girl, two girls, three girls and one boy, two boys and three boys. These counted numbers are data. Generally, all information can be stored that are called data and data storage is called database. Information is collection of processed data which helps us understand a problem. For example, after counting how many girls and boys are in a class, we know that a total number of girls are 20 students and a total number of boys are 30 students. Knowledge is collected information from which we can describe and identify. For example, there are 20 girls and 30 boys coming to Raffles school to study a marketing class although they take different bachelor degree. From this concept, we can understand clearly about the relationships between data and information and knowledge. In order to have knowledge, we need to have data first because it’s considered as input and then it’s processed to take information. After that, information is used to recognize, analyze, and make decision. This final step is called knowledge.

Apart from knowledge is different from data and information; there is interchangeability between these three terms. An example about knowledge becoming information, marketers want to know customers’ demand about a product, they use their knowledge to make a questionnaire to get answers from customers. From the survey, the marketers record information which customers supply and store the result into the information system of company. In addition, information can be a data, for example, sale people of a real estate company introduce information of various apartments to customers, after advertising, they have quantity of customers who choose cheap or luxury apartments and save these numbers into data. Their manager will base on these data to know exactly about customer’s demand of apartments.

The interaction of knowledge, information and data will help managers identify, evaluate and how to decide a problem. Although knowledge is the most important, data and information can transfer to knowledge. Hence, apart from basing on knowledge, managers should collect relevant data and information to have appropriate interchangeability among three terms.

The importance of knowledge management in the organization and the value of effective knowledge management in competitive advantage

(Grey, 1996) Knowledge management is defined as an organization’s intellectual assets and approaches to the creation, capture, business cooperatively. In order to operate in business successfully and produce products efficiently, Knowledge management plays an important role to the organization. (Dalkir K, 2005) It helps organization have a strategy about market, products and human resource effectively. It improves each individual’s knowledge in an organization to create new ideas and thoughts about products. For example, (Apple group website) Last time, Apple company produced Iphone 4 with new features to consumers and attract many customers all over the world. With FaceTime feature, people can talk, smile and watch each other on the screen by video calling. In addition, people can take nice pictures with 5-megapixel camera and built-in LED flash. This can be said that knowledge management helps Apple company invent a new product like Iphone4. It is also considered as raising opportunities for innovation about product. For example, Iphone 4 was produced after iphone 3G and Iphone 3GS. Beside that, the organization can resolve problems quickly by knowledge management. For example, in a company, one employee can not do many jobs at the same time, it will cause low productivity. Hence, we often see in an electronic supermarket, each area usually has staffs standing to sell products. They are assigned one task to be specialized on a product category to introduce and serve customers. Also, they are responsible for solving problems when customers complain. This helps organization operate effectively and achieve high productivity. One more thing, knowledge management reduces cost, save time and brings more profits to the organization. For example, in many fast food restaurants such as: KFC and Lotteria, when guests order foods and drinks, staffs save this information in an order program. Then, this information is automatically transferred to kitchen and cooks will receive these orders to cook foods and serve guests quickly. This program helps restaurants save time in the process of producing products, save cost about employees and have profits.

Beside that, people’s knowledge has created technology which is a vital factor in life nowadays. In a competitive environment, organizations always find new things to invent strange products to serve customers and stand stably in the market. Hence, knowledge is important and valuable for the organization in order to create products which are more quality and difference from competitors’ product. It also helps the organization will increase profits, gain numbers of customers from competitors remarkably, and have ability to stand ahead of competition. For example, (VnExpress, 2010) according to VnExpress website, Apple becomes a biggest technology company in over the world. From a company going to bankrupt in the 1990s, it has surpassed Microsoft due to produce new products such as: Iphone, Ipod and Ipad. In addition, Apple’s value of market capitalization reached 222 billion dollars while Microsoft was 219 billion dollars in May 26. This makes us know that the development of Apple Company is quite fast and it overtook its competitors and achieves significant benefits. The success of Apple Company is considered as effective knowledge management in the organization which creates competitive advantage.

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The value of Knowledge management to managers in the company

The benefits of knowledge management not only brings to the organization but also to managers. Knowledge management helps managers observe and evaluate employees’ work ability, for example, in a restaurant, in order to know which staff is nimble, hard-working, friendly and polite, managers can identify them by their action, behavior and speech when they serve customers and treat colleagues. Knowledge is vital for managers to use in considering their staffs who really have work potentiality or not. In addition, Knowledge management is helpful for managers in product quality management. For example, before products are packaged to sell consumers, managers have to test quality of products and also know that employees’ productivity is good or not by these products. Moreover, knowledge management helps mangers record potential workers’ knowledge if these employees quit the job. It also helps managers communicate experience to staffs while training them and improve employees’ mistakes. For example, after recruiting new workers, managers usually show and train them to make them familiar with their jobs. During training, managers use knowledge to instruct them how to produce products effectively and give ideas to employees when they mistake in the process of production. One more thing, knowledge helps managers save cost in testing workers and save time in training staffs. For example, in the interview, managers can identify an employees’ ability quickly by behavior and also test their knowledge by asking question. This helps managers evaluate a worker well or not. Beside that, knowledge saves training time when managers train employees having knowledge related to the job.

The knowledge management life cycle

Most of every human has knowledge in their brain. Knowledge is divided into two approaches such as tacit knowledge and explicit knowledge. Tacit knowledge is inside human’s brain that is used to create new things. (Dalkir K, 2005) According to Nonaka model, there are four stages between interaction of tacit and explicit knowledge. First stage is from tacit knowledge to tacit knowledge which is called Socialization. For example, in order to make a strategy about selling apartments effectively, employees in a company have different ideas. Hence, they have to share their opinions each other to create a strategy successfully. Sharing information is from tacit knowledge to tacit knowledge. Next, externalization is from tacit knowledge to explicit knowledge. This helps people understand a problem by graphs, numbers and documents. For example, after creation of a new phone, workers need to write the instruction on a paper to help customers know how to use it. In addition, from explicit knowledge to explicit knowledge is called combination. This stage is considered as improving the existing knowledge. For example, Iphone 4 is improved more than Iphone 3GS. It has some new features that Iphone 3GS doesn’t have. Finally, Internalization is from explicit knowledge to tacit knowledge. This can be thought that people’s knowledge can be improved by studying and experience. For example, after training time, employees get new knowledge from experience in work.


In summary, knowledge management is an important and valuable asset to the organization. It helps companies operate successfully, reduce cost, save time and innovation about products. In addition, managers can identify and evaluate workers’ productivity, train employees and manage the process of production effectively from the value of knowledge management. Beside that, the organization should understand the knowledge management life cycle clearly such as Nonaka model in order to perform in business successfully.


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