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UNLOCKING
THE VALUE OF KNOWLEDGE
Knowledge
management as a concept has received much attention of late, but that
does not alter the fact that many businesses are not realising the benefits
of exploiting the knowledge available to them. However, in the current
turbulent business climate, few companies can afford to let this valuable
resources remain untapped. In the financial sector, for example, as David
Parlby from KPMG Consulting explains, knowledge management can be a source
of considerable competitive advantage, particularly in the face of fierce
competition from new market entrants.
The financial sector
is currently undergoing a period of significant change. New market entrants,
new distribution channels and consolidation are challenging the way traditional
financial institutions do business. However, despite the fact that these
traditional organisations have many years of collective expertise, it
is currently the new entrants that are more likely to leverage the value
of the knowledge within their company. In this sense, many organisations
are missing a trick. Within their structure – whether in the skills
and experience of the employees or locked in the databases and operating
systems of the company itself – lies a wealth of information that
can be used to enormous competitive advantage.
In the face of increasing competition, financial corporations are beginning
to focus their efforts on the long-term competitive advantages available
through knowledge management applications. Technologies such as intranets
and data warehouses are enabling companies to automate various information
gathering and retrieval processes. For example, official regulations and
telephone directories can be created electronically, which can reduce
the consumption of stationery materials and printing costs. As a result,
employees will have more time to spend on 'value-adding' activities -
such as pitching for new clients or concentrating on customer queries
- and less time on gathering information - such as searching for an internal
telephone number. The organisation can then benefit from a more motivated
and enthusiastic workforce that works more efficiently and with higher
productivity.
However, while it is certainly the case that knowledge management can
be used to cut costs by improving operational performance, there are other,
more far-reaching benefits to be attained from the implementation of a
knowledge management programme. For example, financial sector organisations
are currently under threat from a whole host of new entrants that are
penetrating the sector. Despite the short time they have been established
these new entrants have built up a large reservoir of information on their
customers, which is being used to support and inform all areas of the
business. One of the advantages traditional players in this market have
is the sheer wealth and volume of experience and information they possess,
yet they are currently failing to maximise the potential of this asset.
In order to regain some of the ground lost to new rivals, established
financial institutions must look to apply all their knowledge to all manner
of business processes – from designing new products and services
to implementing sales and marketing strategies.
In fact, knowledge management is likely to become vital in helping financial
institutions attract and retain their customers. For example, banks are
able to use transaction analysis to carry out tasks as diverse as tackling
fraud and designing new products. Without knowledge management techniques,
changing patterns in the use of a credit card are simply recorded as transactions.
Only when this information is matched with individual records of customers
and the experience of fraud experts can patterns be identified that enable
the bank to spot potential theft or fraudulent use.
In addition, the wealth of information customers provide about themselves,
their interests and their needs from their purchasing choices is far richer
and more reliable than any information that would be given in a market-research
survey. When united with other information from different sources, such
as macro-economic data, banks can use these purchasing patterns to inform
processes such as product development, sales and marketing. For example,
a bank may decide to offer a new loan specifically for home improvements
if it saw that there was an increasing interest in DIY, combined with
an economic downturn that might encourage people not to move house, but
to carry out home improvements. Knowledge management can also enable the
bank to ensure no competitors were offering a similar product (and indeed,
to better a rival's offering), as well as to target precisely those customers
most likely to take out a new loan and to repay it reliably. Traditional
financial institutions have the breadth of knowledge to enable them to
beat newer entrants at their own game, if this information is applied
in an innovative manner.
The same is true in the insurance industry. The information companies
possess about their customer base can enable them to target the most profitable
groups. In particular, concentrating on key areas of differential knowledge,
such as preferred leisure activities, can also help open up lucrative
niche markets, which may not be defined by the traditional demographic
measures such as size of family or age. For example, detailed knowledge
about its customer base might enable a company to target drivers of sports
cars, or even windsurfers! In addition, by identifying the areas in which
its personnel are particularly knowledgeable a company may be able to
tap into a profitable, niche vein that competitors without the same knowledge
would not be able to enter as convincingly. Superior, or different knowledge
can be a powerful basis of competition, allowing companies to move away
from underwriting any business - and a tendency to attempt to be 'all
things to all men' - to only quoting in those areas in which they have
superior expertise and can realistically hope to achieve and maintain
considerable market share. There are real examples today of leading insurers
who have undertaken such knowledge-led business process re-engineering
to considerable advantage to both their corporate value and customer base.
Many financial organisations work in a project or deal-focused environment,
whereby a certain piece of work may require the collaboration of individuals
from a number of different departments and countries, and possessing a
wide variety of very specific experience and expertise. Knowledge management
tools can facilitate the rapid mobilisation of the best team for the job,
which incorporates all those employees whose expertise will add value,
regardless of location. For example, directories outlining the experience
of each member of staff, including skills, employment history, and past
projects undertaken, which are searchable by subject, can be invaluable
in making up a project team. In addition, databases can be set up that
outline past projects, including the personnel involved, the strategy,
any problems encountered and their solution, and the overall outcome of
the project.
By establishing these databases, a store of knowledge can be formed that
is accessible for all employees to use. However, when dealing with knowledge
on a commonly shared network, it is important to create a 'knowledge map'
which enables employees to understand where different types of information
are stored, and includes a comprehensive list of who within the organisation
holds what skills and expertise. As a result, an item of information can
be located as easily as pinpointing a feature on an Ordnance Survey map.
Take, for example, a financial services company that is based in America,
and has strategic partnerships with companies based in the UK and France,
and now wants to break into the German market. By having a database of
employee skills, contacts and common documents within these partnerships,
the company can use these knowledge management tools to facilitate the
rapid mobilisation of the most effective team to realise this goal. Using
knowledge management techniques to gather information on the experience
of each member of staff, their skills - such as the ability to speak German
and any previous experience they have of working in Germany - and employment
history, the perfect team can be formed in order to break into this market.
In addition, knowledge management can help companies overcome at least
some of the problems posed by globalisation and consolidation. Technology
such as intranets improves general communication between departments and
functions across different regions and time zones. In this way, personnel
in a large multinational organisation can gain an understanding of the
activities of their colleagues across the globe, especially those in corresponding
departments and disciplines, and can draw on this diverse experience.
In the event of a merger or acquisition, a concerted effort to capture
and store in a coherent form all the knowledge from both parties, can
have a significant effect on the overall success of the new venture, and
can prevent vital information being lost in the re-structuring process.
This is particularly important in the case of a financial institution
such as a bank taking over an insurer, as in the case of Lloyds TSB and
Scottish Widows. In this situation, each company has different, yet complimentary,
clients and processes, making the integration of information very beneficial.
In addition, by making it business policy to systematically make an organisation's
intellectual capital readily accessible, it may be that common problems
can be assuaged. For example, if one office in one location has laid down
best practice to solve what turns out to be a common operational problem,
this best practice – when shared – could solve similar problems
in offices throughout the world. Without knowledge management, it might
never have come to light that this was a common problem, let alone that
a solution had been found. For European financial institutions struggling
with conversion to EMU, for example, the ability to share best practice
in conversion routines of the best and, possibly, the only way to ensure
that every EMU-related issue – from pricing to long-term relocation
– is effectively addressed.
In an increasingly competitive marketplace, effective knowledge management
is crucial in securing the most profitable clients and the lion’s
share of the market, so the motivation to use good knowledge management
techniques is strong. In addition, many companies already possess much
of the necessary infrastructure. Here, the financial sector’s reputation
for being an ‘early adopter’ of new techniques should pay dividends;
almost every financial institution has the IT networks that enable knowledge
to be shared, along with vast amounts of data. In order to maximise the
value of these reserves and resources, financial companies must act quickly
to put this knowledge to work. As we move through the digital age, the
difference between highly successful and mediocre financial organisations
is increasingly likely to be decided by how effectively they carry out
this vital task.
David Parlby is a Partner at KPMG Consulting, and can be contacted
on 020 7311 8649
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