Journal of Knowledge Management Practice, October 2004

Enhancing Organisational Performance Through Knowledge Innovation:

A Proposed Strategic Management Framework

Andrew Goh, University of South Australia


The field of knowledge management (KM) has emerged strongly as the next source of competitive advantage. However, as to how knowledge management (KM) practices can be employed in the pursuit of innovation has yet to be firmly established. Firstly, this article describes the significance of knowledge by explaining the transition from ‘information revolution’ to ‘knowledge revolution’. Secondly, it explains why KM could enable knowledge innovations to flourish, and describes how information and communication technologies (ICT) could be exploited for this purpose. Thirdly, it develops a strategic management framework for leveraging knowledge innovation (KI) by providing practical considerations on knowledge-centred principles, knowledge-sharing infrastructures and knowledge-based initiatives. Finally, it outlines the future challenges for organisations to exploit the benefits of knowledge innovation.

1.         Introduction

1.1.      Emergence Of Knowledge Management (KM)

In the last decade or so, with the significant role played by knowledge-intensive businesses in the economy, the term “knowledge management (KM)” has generated a lot of interest in corporate sectors.  However, it continues to be conceived with a broad context, for instance, as a process through which organisations generate value from knowledge assets. Given that the Internet has been evolving steadily for decades since its origins in the US APRAnet project in the 1960s and now used as a vital KM tool, the field of KM has strongly emerged as a ‘hot discipline’. Many see it as the next source of competitive advantage, with applications in diverse areas like R&D, medicine, marketing and software engineering.

At the same time, “innovation management (IM)”- which is a field of discipline that deals primarily with issues relating to how the innovation process could be managed effectively, has attracted much attention too (Goh, 2004; Harkema and Browaeys, 2002; Giget, 1997). With innovations as the mainstay of today’s business, IM is now an organisation’s core function. Yet, research on how well knowledge assets may be captured, managed, and utilised for innovation has been less forthcoming. Currently, both KM and IM represent areas of management that seemed to reside in separate spheres of influence, with almost no impact on one another. Nevertheless, one major area of management concern confronting organisations lies in making efficient use of knowledge assets to create better, faster and more cost-effective innovations.

1.2.      Integration Of KM And IM

The immediate strategic concern, as global competition amongst firms intensifies, appears to be more than just dealing with KM or IM issues separately. Rather, it involves acquiring the ability to harness KM practices for IM processes as a deliberate strategy that would bring organisations up the performance ladder.  In the past, organisations, which rely on the success of new innovations to sustain organisational performance, often ask themselves the question: “How can innovation improve our organisational performance?” With knowledge innovation (KI) as a potential source of competitive advantage, organisations are now asking: “How can the pursuit of KI enable us to sustain our long-term competitive advantage in the new business world?”

To provide insights into the strategic management of KI, the two streams of thinking behind knowledge management (KM) and innovation management (IM) need to be drawn closer. Understandably, common strategic issues of KM and IM may shed light on how both areas can be better integrated, with the aim of elucidating theoretical perspectives based on practical considerations.  To offer a more profound appreciation on this aspect of management on knowledge innovation (KI), a strategic management framework is proposed, as a conceptual model to help organisations understand how knowledge innovation can be managed in a more holistic, inclusive and co-ordinated manner. 

Figure 1 provides a pictorial representation for the potential integration of the two disciplines, namely: innovation management (IM) and knowledge management (KM) to introduce a strategic management approach towards leveraging knowledge innovation as a source of sustainable competitive advantage.

Figure 1: Knowledge Innovation (KI) As A Source Of Sustainable Competitive Advantage












2.         The Significance Of Knowledge

2.1.      Transition To Knowledge Revolution

In the new economy, knowledge is the primary resource for economic development; and land, labour and capital – the economist’s traditional factors of production – do not disappear, but they simply become secondary (Drucker, 1994). Traditional factors of production are limited by a threshold of scale and scope as every marginal increase in land, labour or capital results in diminishing returns on additional investment. By contrast, a different law of economics governs the returns from knowledge: investment in every additional unit of information or knowledge created and utilised results in a much higher return [3]. The ‘what’ that impacts on traditional types of innovation has shifted from “tangibles and physical assets” to “processes wherein various forms of knowledge are absorbed, assimilated and shared with the objective of creating new knowledge innovations”.  Under such a scenario, knowledge becomes key to enhancing organisational performance.

While innovation practitioners recognise the importance of knowledge, the apparent confusion between the value of ‘knowledge’ and ‘information’ has caused organisations to sink billions of dollars in information technology (IT) investments that have yielded marginal economic results (Strassman, 1997). This prevailing disconnect between IT expenditures and organisational performance can be attributed to an economic transition from an era of competitive advantage centred primarily on information to one based on knowledge (Malhotra, 2000; 1997). In fact, the rising interest in knowledge innovation as a strategic lever of organisational performance is not entirely new.  Back as the mid-nineties, support for knowledge innovation was already prevalent.

Increasingly, it is evident to organisations that the ‘information revolution’ has been superseded with ‘knowledge revolution’. To succeed in the new knowledge economy [6], organisations who are able to capitalise on the opportunities arising from the availability of knowledge assets and ultimately derive the most value from them will be the industry winners.  Those who cannot will be the industry losers. But to harness the most value from these assets, organisations must identify the types of knowledge assets that benefit businesses and understand how KM practices can be implemented effectively.  Hence, one practical implication of KM research is to contribute new findings that would help practitioners implement and improve the use of knowledge assets, regardless of the context or business objective.

2.2.      The Practice Of Knowledge Management (KM)

Knowledge adds value to an organisation through its contribution to products, processes and people, while KM transforms information, data and intellectual assets into enduring value by identifying “useful knowledge” for management actions (O’Dell, 1996).  In recent years, particularly, theory development relating to KM practices has evolved to be of considerable interest to management writers, strategy thinkers and industry practitioners. Coupled with organisational need to innovate, this interest on KM has been propelled alongside that of innovation management (IM).  With better recognition placed on the practical relevance of KM to business, organisations are beginning to invest in ad-hoc project initiatives to leverage on knowledge for business use [7]. 

So far, the contribution made KM practices has been significant.  One example of the escalating intensity of knowledge in products is the intelligent car, whose engine management systems can monitor the functions of vital engine parts and 'knows' in advance which part needs servicing and thus improves the car performance. Another example of knowledge in processes is the sharing of best practices, such as in high-tech semiconductor fabrication plants, which can bring about huge savings in capital investments. In the case of people, the “skilled knowledge” of highly experienced individuals in commercial transactions (e.g. multi-billion dollar contract negotiations) contributes to whether knowledge-intensive businesses would succeed or fail. 

With KM practices being of significant impact to organisational performance, it resulted in a proliferation of KM tools such as expertise access tools, e-learning applications, Web portals, discussion and chat technologies, electronic message boards, synchronous interaction tools, and search and data mining tools.  While the benefits of KM correlate directly to bottom-line savings, there is nonetheless a risk associated with investments in KM, as they do not necessarily lead to expected benefits due to implementation failures (Lindgren and Henfridsson, 2002; Storey and Barnett, 2000; Fahey and Prusak, 1998).  Yet, the economic impact of KM practices to business is manifested in three areas of any organisation as mentioned above. They are, namely: products like patents or technology licences (intellectual capital), processes like financial procedures or manufacturing methods (structural capital) and people like skilled manpower or specialised talents (human capital).

2.3.      Evolution Of Knowledge Innovation (KI)

Today’s organisations are in an unending struggle to differentiate themselves from relentless competitors, as markets become saturated with new innovations all the time. The ability to differentiate depends on the “intelligent use” of knowledge assets for innovation. As a result, many organisations have been trying new techniques based on unique production processes, rare and distinct skills, creativity, and now on management initiatives such as supply chain management and customer relationship management (Gold et al, 2001).

As global competition intensifies, there were great expectations that knowledge-based computer systems (e.g. expert systems or decision support systems) could be employed as a KM tool.  For close to two decades, the search for KM tools was centred on stand-alone information systems (IS) such as CASE tools or commercial expert system shells.  In retrospect, part of the problem was that system developers have focused too much, perhaps overly so, on developing 'thinking machines', rather than designing these ‘machines’ to augment “human thinking”. Seemingly, it was felt that the roles of information management and knowledge management should be separated and played by machines and humans respectively. Only human beings can take the central role in KM, not computer systems even with the most powerful information-processing capabilities [8] (Nonaka, 1991; Nonaka and Takeuchi, 1995).  It became clear that the use of IT-based KM tools should equip organisations with the requisite competencies needed for innovation; and not replace individuals by “thinking machines’.  Three kinds of physical IT systems are needed for KM practices to be effective, namely: capture tools (e.g. intelligence databases), communication tools (e.g. distributed networks), and collaboration tools (e.g interactive web pages).

Organisations are now fast working towards being recognised as an exemplar of KM practices; and to earn a sizeable payback for their efforts, the real payoff lies in leveraging knowledge for innovation.  To cite an example, Nokia, an organisation that has consistently applied KM practices in its business, has yielded considerable benefits in innovation-related and product development functions.  Nokia makes use of KM practices extensively to understand market trends and customer requirements and puts useful knowledge into action for its innovation pipeline.  It is thus not surprising that industry analysts reported that Nokia continually delivers a new mobile communication product every 25 days!

3.         A Strategic Management Framework

3.1.      Motivation

Currently, the mainstream KM literature relating to IM does not deal adequately the strategic management of KI as an area of concern. On the one hand, most writers concerned with knowledge management (KM) issues, unlike innovation theorists, tend not to exhibit the same degree of understanding on the economic significance of innovation.  On the other hand, innovation writers are often less able to articulate how KM practices can be applied as an effective strategic management tool.  Nevertheless, virtually every organisation is now grappling with the opportunities presented by KM, including new ways to acquire, assimilate and share knowledge in the pursuit of innovation. By now, it is evident that the emergence of knowledge innovation is not only offering immense potential for organisations to gain a sustainable competitive advantage over rivals, but also providing viable means for improving organisational performance [9]. 

Instead of investigating “what goes into the bolts and nuts of knowledge innovation” - which is dependent on business context and is industry-specific, it is more appropriate to concentrate on the strategic management of knowledge innovation (KI). The current vein of thinking centres on: “which strategic aspects of management should knowledge innovation focus on?”  Understanding these issues may provide new insights into how KI can be better fostered.  Hence, a strategic management framework is proposed to guide organisations on aspects of management that would strategically affect the successful implementation of knowledge innovation. 

So far, the noticeable lack of an integrated view of managing knowledge innovation (KI) has led to a certain degree of confusion.  In particular, two areas of literature on KI have yet to be addressed.  Firstly, a definition of knowledge innovation (KI) needs to be specified to put in perspective of its impact on the success of enterprises, economy and society; and to identify the key elements that underscore the importance of knowledge assets and the management actions required for KI.  Secondly, since a comprehensive model for understanding the strategic aspects of KM practices in innovation is not yet apparent in extant literature, integrating KM and IM within the strategic management framework would be necessary.  However, two pertinent questions remain to be answered: One, what are knowledge assets? Two, what does a knowledge innovation really constitute?

3.2.      What Are Knowledge Assets?

Not all information can be considered as ‘knowledge assets’. Very often, organisations determine what information qualifies as knowledge assets, depending on the context and business objective. In general, knowledge assets fall into two categories: explicit or tacit.  Included among the former are patents, trademarks, business plans – any information that can be documented, archived and codified, often with the help of information technology (IT).  In the case of the latter, it is much harder to grasp as the information is contained in people's minds and the real difficulty is to document, share and manage it effectively (Amidon, 1997; Drucker, 1988).

3.3.      What Does A Knowledge Innovation Really Constitute?

Although it was Drucker in the 1950s who first coined the term ‘knowledge worker’, it was only until fairly recent that corporate leaders and policy-makers began to strongly acknowledge that successful innovations are increasingly knowledge-intensive. Amidon (1997) has aptly described ‘knowledge innovation’ as the creation, evolution, exchange and application of new ideas into marketable goods and services, leading to the success of an enterprise, the vitality of a nation's economy and the advancement of society. In gist, two key elements are present in KI. One, it recognises that knowledge is a key element. Two, the actions associated with the management of knowledge is another key element. Yet, it is less clearly delineated as to what extent the literature between KM and IM has overlapped for insights to be drawn into the management of KI (Harkema and Browaeys, 2002; Miller and Morris, 1999; Rogers, 1995).

4.         Strategic Management Of Knowledge Innovation

The tacit nature of an organisation’s knowledge assets and the long-term requirements for continuous innovation call for a different approach to managing knowledge innovation.  Current thinking points to the strategic management of knowledge innovation (KI) as a more effective competitive tool to support organisational performance (Gupta and McDaniel, 2002; Clarke and Rollo, 2001; Probst et al, 1999). Given the wide range of KM tools available, organisations are racing to revolutionise their approaches to utilise knowledge for innovation.  However, applying available KM tools alone that ran the gamut from standard, off-the-shelf computer packages to sophisticated software systems designed to support knowledge management (KM) activities is hardly adequate. Instead, it involves unique and highly professional skills – which are difficult to be trained, learned and assimilated.

Focusing on strategic management issues is more appropriate because the emergence of KI is never stagnant but adjusts in response to ever-changing environments and new market conditions.  Despite the relevance of knowledge assets to innovation management (IM), one wonders why has there been so little literature written on knowledge innovation (KI) in the first place. Recognising that KI should be strongly guided by knowledge-centred principles, with the necessary knowledge-sharing infrastructures required to facilitate knowledge-based initiatives, it must be acknowledged that it implementation depends ultimately on human inputs of decision-making, experience sharing and creative responses by talented individuals.

Clearly, a strategic management framework constitutes a normative quest to offer a better understanding of managing knowledge innovation (KI), as illustrated in Figure 2, in terms of perspectives on principles, infrastructures and initiatives. It provides a management tool for organisations to analyse whether their roles in strategic aspects of management, have been fulfilled.  As the framework extends beyond isolated KM practices, tools and physical systems, its conceptual development is therefore based on a comprehensive overview of KM literature applicable to innovation management (IM).  Furthermore, while the actual KM implementation may be firm-specific and technology-dependent, the strategic management framework nonetheless offers an integrative view of how knowledge innovation (KI) could be strategically managed.     

Figure 2: A Strategic Management Framework

Text Box: Information-Processing ModelText Box: New Mental Model of Knowledge





































5.         Knowledge-Centred Principles

If KM practices are to be incorporated into IM processes as a competitive tool for supporting KI, organisations should embrace their roles based on an evolving set of knowledge-centred principles. Through a distillation process of contemporary literature, six knowledge-centred principles relating to managing KI seem to distinguish themselves from the other conventional management approaches as summarised below (Harkema and Browaeys, 2002; Davis and Botkin, 1999; Miller and Morris, 1999; Skyrme and Amidon, 1997, Davenport, 1993).

1.      Understanding Innovation Value System (not Value Chain) – A value chain is linear and static, while a value system is non-linear, dynamic and represents interdependent relationships that need to be understood, considered and developed for KI; 

2.      Formulating Collaborative Knowledge Strategy (not Competitive Information Strategy) – The latter strategy creates win-lose scenarios due to competition for the same information pie, while former strategy encourages win-win situations through symbiotic relationships by sharing and growing the knowledge pie; 

3.      Developing Strategic Knowledge Networks (not Strategic Business Units) – The latter applies isolated islands of information assets while the former fosters the flow of knowledge assets among partners, customers, suppliers, and other stakeholders including competitors for innovation pursuits;

4.      Constructing Hybrid Human-Technology KM solutions (not Machine-based KM solutions) - Human beings are better at  ‘knowledge skills’, while machines are more adept at ‘information tasks’. To fully harness knowledge for innovation, humans and machines must complement each other.  

5.      Fostering bottom-up knowledge processes (not top-down knowledge processes) – Creative and useful knowledge works, carried out by knowledge workers, require less top-down intervention and more bottom-up spontaneity. 

6.      Focusing on Customer Success (not Customer Satisfaction) - Customer satisfaction meets today's needs only, while a deliberate focus on customer success helps identify future requirements and unmet needs, which form the competitive forces for firm growth and business expansion.

6.         Knowledge-Sharing Infrastructures

The driving force behind the rapid transformation to greater inter-connectivity, accelerated data transmission and reduced costs of communications is none other than information and communication technologies (ICT). Of the ICT available at today’s workplace that have profound impact on KM is that of the Internet and related technologies – which offers an incredible information source to end-users without involving an intermediary (Holland and Picard, 1996). Besides, organisations are also using Intranets for better accessibility in a corporate environment, as its advantages are similar to those that use the Internet in external information access and communications. Nevertheless, knowledge sharing continues to be impeded by a digital divide unless there is a universal access to ICT in all parts of the world [10]. 

Currently, the Internet heralds the way for collaborative sharing of knowledge assets. To implement knowledge-sharing infrastructures for KI, organisations should provide adequate support for codifying and storing knowledge, creating knowledge maps (or corporate directories), sharing best practices, and developing knowledge networks (Maryam and Leinder, 2001; Davenport and Prusak, 1998). Particularly, to exploit the Internet, the characteristics of its knowledge-sharing infrastructures should possess the following (Barth, 2000; Miller and Morris, 1999; Strassmann, 1997):

         Uses a widely-supported communications standard protocol – which means that it is universally accessible from multiple locations and through different computer platforms;

         Offers world-wide access, with increasingly more international service providers (ISP) – which means that individuals, who travel a lot, can use the Internet like a corporate network without building an in-house option;

         Avails end-user software like electronic mail and browsers to be universally affordable at low cost – which means that it is cost-effective to implement on an enterprise-wide basis;

         Employs a high-speed, broadband, digital network based on optical fibre cables with limitless bandwidth – which means that it provides quick access at an reasonable cost;

         Provides a quick means of publishing information, through the World Wide Web, that can be shared globally – which means that the universal repository of information resources can be updated rapidly and widely shared. 

7.         Knowledge-Based Initiatives

Although knowledge-based initiatives need not necessarily be implemented through the Internet, its relative ease of use, cost-effectiveness and immediate availability to a global audience of users in more than 190 countries offer immense advantages. As the purpose of any knowledge-based initiative is to identify ‘knowledge gems’ from a ‘sea of information’, the Internet provides an effective means for enterprise-wide knowledge activities to be accomplished via groupware systems like Lotus Notes and Intranets. Ultimately, whether a knowledge-based initiative contributes to innovation depends largely on human imagination and creativity and the knowledge assets available at a point in time and context (Malhotra, 2000; 1997). Based on a review of current KM practices based on organisations that host information in the Internet, nine knowledge-based initiatives are identified to be of considerable significance to knowledge innovation in products, processes and people (Amidon, 1997; Skyrme and Amidon, 1997; Davenport, 1996; Skyrme, 1991):

7.1.      Products

         Structuring and mapping knowledge – such as developing typologies or synthesising different knowledge types;

         Developing knowledge databases – documenting best practices, expert directories, market intelligence and so on;

         Embedding knowledge in new products and services – such as the introduction of smart products.

7.2.      Processes

         Capturing and re-using information as knowledge - such as utilising old project deliverables as source materials;

         Sharing of lessons learnt about knowledge processes – such as through distribution, dissemination or personal interaction;

         Measuring and managing the value of knowledge assets – such as attaching an economic worth to the ownership of patents.

7.3.      People

         Creating knowledge or intellectual capital teams – such as identifying and auditing intangible knowledge assets;

         Forming people-oriented knowledge centres – such as focal points for developing knowledge skills and knowledge databases;

         Using collaborative technologies for knowledge exchange between people - the implementation of electronic mail and groupware for multiple-user access.

8.         Future Challenges For Knowledge Innovation

This article has attempted to integrate the two management areas: KM and IM, into one singular focus to foster new strategic thinking in KI. It suggests that to manage KI in any organisation, three strategic aspects of management should be looked into as a whole. One, organisations should embrace knowledge-centred principles to better maximise the value of their knowledge capital for innovation. Two, organisations should implement knowledge-sharing infrastructures through ICT to better enhance the knowledge assets required for innovation pursuit. Three, organisations should promote knowledge-based initiatives to better facilitate the creation of KI. A strategic management framework is proposed for organisations to better fulfil their roles. But to fully exploit the benefits of KI, three challenges that merit attention are identified as follows:

Firstly, as KI encompasses the use of various types of knowledge assets, and social, economic and other forms of tacit knowledge, the innovation process requires the assimilation of human imagination, intuition and creativity at different levels. To unleash the potential of KI, the first challenge is to permeate knowledge-based initiatives to various layers of society – industrial, organisational and humanistic structures, which would then enable individuals to utilise knowledge capital to actively participate in the core activities of KI.  

Secondly, though the objective of KI is to improve organisational performance, it should not be viewed as the “magic cure” for ailing organisations. Paradoxical as it may sound, the fewer best KM practices an organisation requires in innovation, is also a reflection that it has adequately embraced knowledge-centred principles in its business.  The second challenge posed to organisations is to create new knowledge assets all the time, and to make them readily available, transparent and freely mobile for individuals involved in KI. 

Thirdly, for KI to flourish, it must be fostered within an enabling environment.  Since KI constitutes the ‘discovery of new knowledge assets’, based on competencies and talents inside and outside an organisation, all forms of collaboration between enterprises should be encouraged and valued.  The third challenge lies in strengthening the role of all stakeholders in a knowledge enterprise – building a knowledge-oriented culture and nurturing a knowledge-sharing ecosystem.  After all, the success of any KI depends on the extent of collaboration amongst individuals who have created the knowledge – the very trait that make knowledge useful, beneficial and valuable to society.

In conclusion, like any form of innovation, knowledge innovation (KI), too, is often managed with a business objective in the context of ‘imperfect conditions’. It must therefore be acknowledged that the ultimate goal of managing KI effectively is perhaps one for all knowledge workers to strive for, but never to be completely accomplished. A proposed strategic management approach to understanding the theoretical perspectives and practical considerations surrounding knowledge-centred principles, knowledge-sharing infrastructures and knowledge-based initiatives, to foster knowledge innovation (KI) stands a far better chance of success.   

9.         References

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About the Author

Dr. Andrew Goh is associated with the International Graduate School of Management, Division of Business & Enterprise, University of South Australia His current research interests lie in knowledge management, innovation management and business strategy.

He can be reached at:

Mailing Address: 38 elite terrace, singapore 458785, republic of singapore

Tel: (065) 9022 4882; Fax: (065) 6444 6901; Email: