People, Knowledge, and Value
Since the early 2000s, the authors have balanced market research with real business experience for companies of different sizes, cultures, and segments to develop a comprehensive model that details the unique role of people and knowledge in supply chain management (SCM). It is necessary to understand the intermediate evolutionary stages of knowledge management within the supply chain. In this context, the Supply Network Knowledge Maturity Map (SKMap) is introduced in this book and forms the basis to support in-depth discussions in the following chapters. The SKMap has five stages:
- Pre-supply chain (functional silos)
- Supply chain early stage
- Supply chain maturity stage
- Supply chain excellence stage
- Supply chain innovation stage
Because organizations rarely have one single supply chain to support all their operations, it is commonly found that several “supply chains” are managed concurrently, and each of these will have a particular moment within the SKMap. The complete model has eight different maturity levels and five key evolutionary outputs. Over time, companies tend to move through the maturity levels, from the functional knowledge silos to the developed supply network management environment.
The SKMap maturity levels are as follows:
- Functional silos
- Supply chain building blocks
- Tactic integration
- Supply chain governance
- Integrated business
- Selected SCM (supply chain management)
- Extended SCM (supply chain management)
- Supply network management
Figure 1.10 SKMap
This maturity evolution results in different outputs for the business:
- Basic daily management
- Baseline results
- Operational efficiency
- Business differentiation
- Shareholder value
Maturity Levels 1 and 2
Chapter 3, “Supply Network Knowledge Areas,” covers the SKMap in detail, but it makes sense here to briefly introduce maturity levels 1 and 2 so as to highlight the importance of knowledge management in the evolution of SCM models over the years.
Even in the past, before supply chain concepts had even been introduced, companies already had policies and routines that were the pillars of today’s best practices. However, the transition from disconnected functional silos to the supply chain building blocks can occur only through the proper management of knowledge, as illustrated in Figure 1.11.
Figure 1.11 SKMap: From maturity level 1 to level 2
The analysis of how these building blocks are implemented within the organization may indicate companies’ supply chain maturity level and may be classified according to the progressive stages suggested by the SKMap. To capture the evolution’s real dynamics, it is necessary to map attributes such as product, customer, supplier, and many others. Attempts to communicate how supply chain maturity develops within the organizational structures have failed either due to a limited or incomplete perspective of SCM or to a biased approach focusing on specific elements of the supply chain. Some of these proposed models are based on a purely academic approach, unable to grasp the flavor of real-world dynamics. Common disciplines often forgotten over the years include governance, risk management, knowledge management, human resources, and project management.
Examples of biased SCM approaches include concepts such as customer-centric supply chains, demand-driven supply chains, lean supply chains, and agile supply chains. All these propose value through arguments structured upon limited perception of the complexity of supply networked companies. Although relevant, these approaches are insufficient to deliver the real promise of any business: life-long shareholder and stakeholder value.
Even though several management models have been used to suggest how companies can create and sustain value-adding supply chains, none of these has succeeded in properly addressing the foundation issues of managing the knowledge and its core strategies. Despite the promise that several so-called best practices promote (the eventual benefits achieved by using a variety of state-of-the-art methodologies), all areas of the organization need a common basic resource: people. People represent the only true building block capable of delivering sustainable long-term shareholder value.
People are the real treasure of the organization, and through them sophisticated information networks may find the adequate architecture required to enable companies to deliver both their intermediate and ultimate goals. Through people, it is possible to manage knowledge, triggering the virtuous cycle that creates and sustains the value-added innovation environment that leads the business to its ultimate goal: delivering value to its shareholders and stakeholders. When knowledge is suitably managed, all organization peculiarities are uncovered. The key concept here is visibility.
The basis for the virtuous cycle is the ability the organization has to decide on and implement actions that promote change with value added to the business. Therefore, whatever the organization considers value to be should be precisely defined and understood before the beginning of the decision-making process.
Uncontrolled turnover levels within organizational areas interrupts this virtuous cycle. When any person leaves the organization, the organization loses more than just that individual’s knowledge of the business. In fact, that might be the least of what the business loses. When the individual is no longer connected to peers, subordinates, leaders, and other business partners, all types of information that used to flow “through” him/her is immediately interrupted. The organization can only perceive a small part of these interrupted flows; all the others tend to be forgotten until they are noticed once again when problems inevitably arise from such discontinuity.
The consequence of the amplification of this disconnecting effect, weighted by the severity of its impacts, is the dramatic reduction in the ability to see and to understand the business environment. Therefore, the decision-making process that steers the organization toward its goals is definitely affected.
This scenario raises the issue of the importance of the human resources area to the management of the virtuous cycle. As you read on, you will more fully understand that the human resources area is one of the strategic elements that sustain both corporate and supply chain governance. Human resources peers with areas such as customer service, project management, and information technology.
Figure 1.12 The virtuous cycle
A possible approach to integrate knowledge management discipline with SCM may consider two complementary dimensions that must react quickly to the remarkable speed of business change. These dimensions are knowledge dynamics and knowledge strategies.
Figure 1.13 Knowledge management dimensions
Knowledge dynamics are founded upon three building blocks:
- Irreversible continuous expansion
- Reactive segmentation
- Structured specialization
Knowledge expansion results from everyday interactions between the members of an organization or between them and members of other organizations. This continuous mechanism transforms the cumulative knowledge basis. Because of the constantly expanding nature of an organization’s knowledge, an elaborated and informational architecture capable of ensuring the progress of flows is essential. Knowledge segmentation is an automatic reaction to accommodate the immense inflow that permanently influences any business. This unplanned reaction has limited effectiveness to facilitate a value-adding decision-making momentum. The blocks of knowledge recently created are quite heterogeneous due to the lack of a precise filtering mechanism.
Figure 1.14 Knowledge dynamics
The immediate consequence of this early knowledge segmentation is the formation of disconnected knowledge islands. The boundaries of these islands are initially defined both by the hierarchical levels (horizontal layers) and the departmental structures (vertical layers) most companies have.
Figure 1.15 Disconnected knowledge islands
Figure 1.16 illustrates these vertical and horizontal barriers to communication. There are nine potential silos where knowledge may be retained. In addition to both horizontal and vertical obstruction to knowledge flows, other factors promote knowledge segregation, factors such as cultural barriers and political games. This creates an environment with a high probability of a single business signal sent from the logistics director (top of the pyramid) reaching knowledge islands 7, 8, and 9 quite distorted. (The signal may even fade away entirely before it penetrates all the organizational structures.)
Figure 1.16 Examples of knowledge islands
This effect is not restricted to one company’s boundaries. As illustrated in Figure 1.17, the multiplying effect is clear as we consider suppliers, customers, logistics service providers (LSPs), and other elements of the immediate supply chain or even the extended supply network.
Figure 1.17 Immediate supply chain knowledge barriers
Knowledge specialization requires a deeper understanding of companies’ operations and a clear view of how to adequately allocate people to deliver process performance and business goals. The knowledge specialization process looks at the knowledge structures created during the segmentation phase and adds specific expertise to establish a minimum set of rules for the informational flows. Knowledge specialization requires the active application of organizational understanding, as you will see in the subsequent illustrations. The movement toward specialization is risky because it usually implies organizational rearrangements, job description revision, and changes in people’s responsibilities.
Figure 1.18 Multiplication of knowledge silos
Because people are involved, all sorts of feelings arise in this period, which requires the support of a solid change management strategy. People will go through all well-known stages, from denial to eventual acceptance.3
The length of this transition period depends on the complexity of the organization, the level of change, the maturity of people involved, and the culture of the company. A successful process leads the organization to a business environment prepared to reach outstanding results in the long term.
Figure 1.19 Transition to knowledge specialization
Once the company has reached knowledge management leadership in its segment or in a given functional area, this position should be preserved for an extended period, nurturing a virtuous cycle that builds well-balanced governance. Eight strategies support long-term knowledge management, as shown in Figure 1.20.
Figure 1.20 Knowledge management strategies
Figure 1.21 illustrates the basic dynamics of an enduring knowledge management (KM) strategy. The simplified roadmap for the application of knowledge strategies begins with the evaluation of the environment, which is affected by the permanent inflows of information.
Figure 1.21 Knowledge management: Simplified roadmap
Evaluation of the environment and the identification of required knowledge that the organization needs to respond to the challenges of this environment are usually solely led by specialists in their functional areas. More mature companies will offer additional support to these strategies, usually originating in the human resources area or its equivalent. As the desired knowledge is acquired, the new challenge is to retain it.
The second phase of the strategies focuses on knowledge retention. Because organizational turnover appears as the ultimate driver for knowledge leakage, it is addressed in detail in this phase. The third phase enables the proper use, development, and sharing of knowledge, combined with enterprises’ corporate governance.