Proceedings of the 12th European Conference on Knowledge ...

Developing a Knowledge Strategy Using Tacit Knowledge
Measurement: Implications for <strong>the</strong> Balanced Scorecard
Innovation and Learning Perspective
Harold Harlow
Wingate University, Wingate, North Carolina, USA
h.harlow@wingate.edu
Abstract: This research paper develops practical measures that can be used by managers to develop a
knowledge strategy for <strong>the</strong> balanced scorecard innovation and learning perspective. My research proposes <strong>the</strong>
use <strong>of</strong> <strong>the</strong> (1) tacit knowledge index (TKI) to assess <strong>the</strong> level <strong>of</strong> tacit knowledge within firms and that effect on
firm performance and (2) <strong>the</strong> development <strong>of</strong> a knowledge strategy for <strong>the</strong> BSC innovation and learning
perspective based on <strong>the</strong> TKI. My prior research surveyed 108 United States, <strong>European</strong> and Canadian firms that
are using knowledge management to determine each firm’s Tacit Knowledge Index which was <strong>the</strong>n related to <strong>the</strong>
innovation and financial results at each firm as well as <strong>the</strong> knowledge strategy employed. This research revealed
significant relationships between a firm’s knowledge strategy, level <strong>of</strong> TKI and <strong>the</strong> firm’s innovation performance.
The relationship to <strong>the</strong> financial outcomes was less strong.
Keywords: tacit knowledge, balanced scorecard, knowledge strategy
1. Introduction
The late Peter Drucker (1999) said that that “knowledge has become <strong>the</strong> key economic resource and
<strong>the</strong> dominant-and perhaps even <strong>the</strong> only-source <strong>of</strong> competitive advantage.” According to a survey
conducted by <strong>the</strong> International Center for Business Information, 97% <strong>of</strong> executives in eleven countries
considered knowledge an essential part <strong>of</strong> value creation (Halton 1997). According to Krogh, Ichigo
and Nonaka (2000), “<strong>the</strong> first responsibility <strong>of</strong> managers is to unleash <strong>the</strong> potential <strong>of</strong> an
organization’s knowledge into value creating activities”. The firm specific concept <strong>of</strong> intellectual capital
was introduced in <strong>the</strong> early 1990s which connected <strong>the</strong> idea <strong>of</strong> a firm’s knowledge to <strong>the</strong> concept <strong>of</strong>
firm intellectual capital to address valuation <strong>of</strong> intangibles and to fur<strong>the</strong>r explain <strong>the</strong> idea <strong>of</strong> value
creation and its relationship to firm performance (Edvinsson and Malone 1997; Roos and Roos 1997;
Stewart 1997; Sveiby 1997). Fur<strong>the</strong>r, a firm’s knowledge and intellectual capital can be dynamically
deployed and redeployed to form a basis for competitive advantage (Teece 2000).
Knowledge is a resource that can be employed for strategic purposes but not all knowledge has
strategic value nor can all knowledge be converted into value-creating activities. Strategic
frameworks have been proposed to relate <strong>the</strong> role <strong>of</strong> firm knowledge to strategy (Von Krogh, Ichijo,
and Nonaka 2000) with astute management <strong>of</strong> <strong>the</strong> value in a firm’s competence/knowledge base as a
central issue in developing firm strategies (Teece 1986).
Business has recognized that not all knowledge yields competitive advantage (Von Krogh et al.,
2000). Of <strong>the</strong> two types <strong>of</strong> knowledge (tacit and explicit), tacit knowledge is <strong>the</strong> more strategically
valuable since it is hard to duplicate, cannot be easily transported to ano<strong>the</strong>r firm and is embedded in
<strong>the</strong> group culture and social understandings.
There is a constant interaction between corporate strategy and knowledge strategy. The corporate
strategy guides <strong>the</strong> strategic intent <strong>of</strong> <strong>the</strong> organization and this intent must be used to create <strong>the</strong>
knowledge management strategy. Development <strong>of</strong> <strong>the</strong> knowledge strategy creates new organizational
capabilities that may form <strong>the</strong> basis for new corporate strategies as knowledge is spread through <strong>the</strong>
organization.
A knowledge strategy must be one that is based on both overall business goals and measurable
outcomes which should be measureable as to <strong>the</strong>ir effectiveness. One way to measure <strong>the</strong>
effectiveness <strong>of</strong> a knowledge strategy is to develop key performance indicators (KPI) using <strong>the</strong>
balanced scorecard topology, specifically in <strong>the</strong> research <strong>the</strong> learning and growth perspective and <strong>the</strong>
financial perspective. This research connects <strong>the</strong> BSC financial outcomes and <strong>the</strong> learning and
growth perspective KPIs as measured outcomes.
Kaplan and Norton (1996) have provided three outcomes areas in <strong>the</strong> learning and growth
perspective that contain what are both tacit and explicit measures <strong>of</strong> effectiveness as well as potential
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