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Managing the Digital Firm, Seventh Canadian Edition
CHAPTER 11
Managing Knowledge
LEARNING OBJECTIVES
After reading this chapter, you will be able to answer the following questions:
1. What is the role of knowledge management and knowledge management programs in
business?
2. What types of systems are used for enterprise-wide knowledge management and how
do they provide value for businesses?
3. What are the major types of knowledge work systems and how do they provide value
for firms?
4. What are the business benefits of using intelligent techniques for knowledge
management?
Teaching suggestions
The opening case on Canadian Tire shows how business performance can benefit by
making organizational knowledge more easily available. Facilitating access to
knowledge, improving the quality and currency of knowledge, and using that knowledge
to improve business processes are vital to success and survival.
The chapter-opening diagram calls attention to important points raised by this case and this
chapter. Canadian Tire is a very large and far-flung company with multiple lines of
business. It has many different business units and retail dealers with which to communicate
Canadian Tire developed a successful information-sharing platform for its dealers using
Microsoft SharePoint Server, improving dealer operations and customer service. But the
knowledge it provided internally to employees was disorganized and out of date.
Canadian Tire revamped its TIREnet employee intranet, based on Lotus Notes Domino
software, by switching its technology platform to Microsoft SharePoint Server and by
streamlining and simplifying the interface. It improved its business processes for classifying
Managing the Digital Firm, Seventh Canadian Edition
and storing documents to make them easier to locate using SharePoint search technology.
SharePoint has tools for automatically tracking the time and authorship of document
updates, which also help Canadian Tire keep its information up to date. Thanks to better
knowledge management, Canadian Tire is operating much more efficiently and effectively
The opening case demonstrates how an organization can improve its business
Section 11.1, “The Knowledge Management Landscape”
Most students don’t think about the differences between data, information, knowledge,
and wisdom. It may be helpful to follow pieces of sales data through each of the four
entities. Data would be that five widgets sold. Information about the widget sales would
be that all five widgets were sold in one month in Ontario. Knowledge would extend the
data and information to show that it is an extraordinary event to sell five widgets in
Ontario because the most that are ever sold in one month are two. Wisdom would tell
Section 11.2, “Enterprise-Wide Knowledge Management Systems”
Enterprise-wide knowledge management systems help manage structured knowledge,
semistructured knowledge, and tacit knowledge. Enterprise content management systems
organize the first two – structured and semistructured. Taxonomies categorize
Managing the Digital Firm, Seventh Canadian Edition
information making it easier to access. Companies use digital asset management systems
to classify, store and distribute information contained in graphics, videos, and audio files.
Knowledge network systems organize the third kind of knowledge – tacit knowledge.
Most students are familiar with and have used blogs, wikis, and social bookmarking
technologies in their personal lives. However, students may be surprised to learn that they
WINDOW ON ORGANIZATIONS: IMPROVING EMPLOYEE
COMMUNICATIONS AT HYDRO QUÉBEC
Case Study Questions
1. What types of problems was Hydro-Québec experiencing with document
management before instituting the OpenText system?
2. How did the OpenText system provide a solution to these problems?
3. What management, organization, and technology issues had to be addressed in
selecting and implementing Hydro-Québec’s new content management system?
Management: Hydro wanted to provide employees access to necessary documents to
4. How did the new content management system change writing, editing, searching,
accessing processes for Hydro-Québec? How did it benefit the system’s users?
Users could manage their own content. All document branding and layout was
standardized to meet corporate standards.
Section 11.3, “Knowledge Work Systems”
Spend a few minutes discussing knowledge assets and knowledge management. Ask your
students to discuss how companies like Microsoft, Dell, Toyota, or Staples might manage
their knowledge assets. Going over the examples of knowledge work systems listed in the
WINDOW ON TECHNOLOGY: FIREWIRE SURFBOARDS LIGHTS
UP WITH CAD
Case Study Questions
1. Analyze Firewire using the value chain and competitive forces models.
Firewire is using information systems to achieve a competitive advantage by
introducing new products and services to its customers that others are not. It is
2. What strategies is Firewire using to differentiate its product, reach its
customers, and persuade them to buy its products?
Firewire began using computer-aided designs (CAD) sent to cutting facilities to
design and build surfboards rather than doing all the work by hand. The computer-
3. What is the role of CAD in Firewire’s business model?
4. How did the integration of online custom board design software (CBD), CAD,
and computer numerical control (CNC) improve Firewire’s operations? How
does this affect surfboard manufacturers and shapers in British Columbia?
The computer-aided design (CAD) process reduced the amount of work that had to be
done by hand by 10 percent. It also allowed the company to build its surfboards more
Managing the Digital Firm, Seventh Canadian Edition
Section 11.4, “Intelligent Techniques”
In this section, students are introduced to artificial intelligence, expert systems, cased-
based reasoning, fuzzy logic systems, neural networks, genetic algorithms, and intelligent
agents. When discussing the material from this section, remind your students of the
Review Summary
1. What is the role of knowledge management and knowledge management
programs in business?
2. What types of systems are used for enterprise-wide knowledge management and
how do they provide value for businesses?
3. What are the major types of knowledge work systems and how do they provide
value for firms?
4. What are the business benefits of using intelligent techniques for knowledge
management?
Key Terms
The following alphabetical list identifies the key terms discussed in this chapter. The
page number for each key term is provided.
3-D printing 352
Agent-based modelling 362
Artifi cial intelligence (AI) 355
Augmented reality (AR) 354
Backward chaining 355
Case-based reasoning (CBR) 355
Managing the Digital Firm, Seventh Canadian Edition
Communities of practice (COPs) 345
Computer-aided design (CAD) 351
Data 342
Digital asset management systems 348
Fuzzy logic 357
Genetic algorithms 361
Hybrid AI systems 363
Inference engine 355
Knowledge 342
Knowledge base 355
Knowledge discovery 354
Knowledge management 344
Structured knowledge 347
Tacit knowledge 343
Taxonomy 348
Virtual Reality Modeling Language
Review Questions
1. What is the role of knowledge management and knowledge management
programs in business?
Define knowledge management and explain its value to businesses.
Knowledge management is the set of processes developed in an organization to
create, gather, store, maintain, transfer, apply, and disseminate the firm’s knowledge.
Knowledge management promotes organizational learning and incorporates
Table 11-1 describes the important dimensions of knowledge:
• Knowledge is a firm asset: An intangible asset; requires organizational resources;
experiences network effects as its value increases as more people share it.
Managing the Digital Firm, Seventh Canadian Edition
Distinguish between data, knowledge, and wisdom and between tacit knowledge
and explicit knowledge.
Data by itself has no meaning but is the first step in the creation of knowledge.
Knowledge includes concepts, experience, and insight that provide a framework for
creating, evaluating, and using information. Wisdom is the collective and individual
Describe the stages in the knowledge management value chain.
Refer to Figure 11–1 for the knowledge management value chain. These steps
include:
• Acquire: Knowledge discovery, data mining, neural networks, genetic
algorithms, knowledge workstations, expert knowledge networks
• Store: Document management systems, knowledge databases, expert systems
• Disseminate: Intranet portals, push email reports, search engines, collaboration
• Apply: Decision support systems, enterprise applications
2. What types of systems are used for enterprise-wide knowledge management and
how do they provide value for businesses?
Define and describe the various types of enterprise-wide knowledge management
systems and explain how they provide value for businesses.
There are three types of knowledge management systems:
• Enterprise-wide knowledge management systems are general-purpose, firm
wide efforts that collect, store, distribute, and apply digital content and
knowledge. These systems include capabilities for searching for information,
storing both structured and unstructured data, and locating employee expertise
• Knowledge network systems provide an online directory of corporate experts in
well-defined knowledge domains and use communication technologies to make it
Managing the Digital Firm, Seventh Canadian Edition
Describe the role of the following in facilitating knowledge management: Portals,
wikis, social bookmarking, and learning management systems.
• Portals provide access to external sources of information like news feeds and
research, as well as to internal knowledge resources along with capabilities for
email, chat/instant messaging, discussion groups, and videoconferencing.
• Wikis provide a central repository for all types of corporate data that can be
displayed in a Web browser, including electronic pages of documents,
3. What are the major types of knowledge work systems and how do they provide
value for firms?
Define knowledge work systems and describe the generic requirements of
knowledge work systems.
Knowledge work systems (KWS) are specialized systems for engineers, scientists, and
other knowledge workers that are designed to promote the creation of knowledge and to
Managing the Digital Firm, Seventh Canadian Edition
KWS must have adequate computing power to handle the specialized tasks and
complex calculations, provide easy access to external databases to support research,
and present a user-friendly interface. KWS software uses intensive graphics, analysis,
Describe how the following systems support knowledge work: CAD, virtual
reality, augmented reality, and investment workstations.
• CAD systems automate the creation and revision of designs using computers and
sophisticated graphics software. Benefits include the production of more
sophisticated and functional designs, reducing the time required to produce
designs, reducing expensive engineering changes, preparing fewer prototypes, and
facilitating the tooling and manufacturing process.
• Virtual reality systems have visualization, rendering, and simulation capabilities.
This type of system uses interactive graphics software to create computer-
4. What are the business benefits of using intelligent techniques for knowledge
management?
Define an expert system, describe how it works, and explain its value to business.
Expert systems are an intelligent technique for capturing tacit knowledge in a very
specific and limited domain of human expertise. These systems capture the
knowledge of skilled employees in the form of a set of rules in a software system that
can be used by others in the organization.
Managing the Digital Firm, Seventh Canadian Edition
Define case-based reasoning and explain how it differs from an expert system.
Case-based reasoning (CBR) uses descriptions of past experiences of human
specialists, representing them as “cases” and storing them in a database for later
retrieval when the user encounters a new case with similar parameters. The system
searches for stored cases similar to the new one, locates the closest fit, and offers the
Define a neural network and describe how it works and how it benefits businesses.
Neural networks are usually physical devices (although they can be simulated with
software) that emulate the physiology of animal brains. Neural networks are used for
solving complex, poorly understood problems for which large amounts of data have
Managing the Digital Firm, Seventh Canadian Edition
Define and describe fuzzy logic, genetic algorithms, and intelligent agents.
Explain how each works and the kinds of problems for which each is suited.
Fuzzy logic is a rule-based AI technology that tolerates imprecision by creating rules
that use approximate or subjective values and incomplete or ambiguous data. Fuzzy
logic represents more closely the way people actually think than traditional IF-THEN
rules. For example, if we all agree that 50 degrees is hot and -40 degrees is cold, then
Discussion Questions
1. Knowledge management is a business process, not a technology. Discuss.
Knowledge that cannot be communicated and shared with others is nearly useless. It
becomes most useful and actionable when it’s shared throughout an organization. Much
of a company’s value depends on its ability to create and manage knowledge. Well-
2. Describe various ways that knowledge management systems could help firms
with sales and marketing or with manufacturing and production.
KMS have been developed for sales and marketing to help them access and share
information about customers, sales leads, competitors, and changes in pricing and
3. Your company wants to do more with knowledge management. Describe the
steps it should take to develop a knowledge management program and select
knowledge management applications.
The first step is to understand the dimensions of knowledge as outlined in Table 11-1.
These guidelines help lay the groundwork for selecting a knowledge management
system that will meet the needs of the organization.
The second step is to review the Knowledge Management Value Chain in Figure 11-
Once the groundwork has been accomplished, the organization must decide which of
the three knowledge management systems best fit the needs of its employees,
managers, and executives. An enterprise-wide knowledge management system is a
general-purpose firm-wide effort to collect, store, distribute, and apply digital content
and knowledge. Are the capabilities for information searches, storing both structured
and unstructured data, and locating employee expertise valuable to the organization?
Are technologies like portals, search engines, collaboration tools, and learning
management systems important to the organization?
Would knowledge work system built for engineers, scientists, and other knowledge
workers that provide computer-aided design, visualization, simulation, and virtual
reality systems fulfill the organizational needs?
Or, does the organization require intelligent techniques such as data mining, expert
systems, neural networks, fuzzy logic, genetic algorithms, and intelligent agents?
Managing the Digital Firm, Seventh Canadian Edition
Hands-On MIS Projects
Management Decision Problems
1. U.S. Pharma Corporation: Headquartered in New Jersey the company has research
sites in Germany, France, U.K. Switzerland, and Australia. R& D is key to its
ongoing profits. Researchers need to share information with others within and outside
2. Canadian Tire: One of Canada’s largest companies that sells a wide range of goods
and services. The retail outlets are independently owned and operated. The company
was using daily mailings and thick product catalogues to inform its dealers about new
products, merchandise setups, best practices, product ordering, and problem
resolution. It is looking for a better way to provide employees with human resources
and administrative documents. Describe the problems created by doing business this
way and how knowledge management systems might help.
First, the company is wasting dollars and time by using offline mailings and paper
catalogues to pass information and knowledge to its dealers. All that should be made
Managing the Digital Firm, Seventh Canadian Edition
Improving Decision Making: Building a Simple Expert System for Retirement
Planning
Software skills: Spreadsheet formulas and IF function or expert system tool
Business skills: Benefits eligibility determination
Using the information provided, build a simple expert system. Find a demonstration copy
of an expert system software tool on the Web that you can download. Alternatively, use
your spreadsheet software to build the expert system.
Students will need to find an expert system tool that provides a mechanism, called the
inference engine, which automatically matches facts against patterns and determines
which rules are applicable.
If they want a good resource for their PDA, try
http://www.bitsys.demon.co.uk/download.htm. This expert system for the palm is a trial
version of the ZEN Expert System. The trial version is free to use but will only operate
with the demonstration knowledge base.
Other sites to direct students to include:
• PC AI — Expert systems resources
The solution requires a very simple system with a limited number of rules. If students
can’t find expert system software to work with, they can build a primitive system using
Improving Decision Making: Using Intelligent Agents for Comparison Shopping
Software skills: Web browser and shopping bot software
Business skills: Product evaluation and selection
Managing the Digital Firm, Seventh Canadian Edition
You have decided to purchase a new digital camera. Select a digital camera you might want
to purchase, such as the Canon PowerShot S95 or the Olympus Stylus 7040. To purchase
CASE STUDY: IBM’S WATSON: CAN COMPUTERS REPLACE
HUMANS?
Case Study Questions
1. How powerful is Watson? Describe its technology. Why does it require so much
powerful hardware?
The hardware required for Watson to work so quickly and accurately was
staggeringly powerful. Watson consists of 10 racks of IBM POWER 750 servers
2. How “intelligent” is Watson? What can it do? What can’t it do?
Watson learns from its mistakes and successes, much as humans do, through machine
learning. Algorithms programmed into its memory evaluate the language used,
3. What kinds of problems is Watson able to solve? How useful a tool is it for
knowledge management?
Future applications for Watson are numerous and wide-ranging in medicine, financial
services, or any industry where sifting through large amounts of data (including
unstructured data) to answer questions is important.
4. Do you think Watson will be as useful in other disciplines as IBM hopes? Will it
be beneficial to everyone? Explain your answer.
IBM hopes to use Watson in medicine, financial services, or any industry where
sifting through large amounts of data to answer questions is important. WellPoint
