HRM in the Knowledge Economy: Realising the Potential

Whicker, L.M and Andrews, K. M. Asia Pacific Journal of Human Resources (2004), 42, 2, 156 165. HRM in the Knowledge Economy: Realising the Potential Abstract In the knowledge economy, knowledge-based capabilities are the key to competitive advantage. At the firm level, this places the enterprises people, their knowledge and innovative capacity at the heart of strategic potential, and organisations that excel in attracting, creating, managing and sustaining knowledge capabilities are advantaged. Human Resource Management (HRM) has over recent years been exhorted to demonstrate its position as a strategic partner to executive management: this promise has been only partially realised. In this article, we explore the knowledge economy and the management of knowledge from an HRM perspective. Commanding a central position in realising value from knowledge assets is proposed as a strategic role for HRM. Specifically, HRM must respond to the key challenges presented by the knowledge economy. We identify four HRM priorities: becoming expert in identifying and defining strategic knowledge capabilities; developing and managing knowledge workers by leveraging the knowing-learning-doing nexus; building knowledge value as an organisational as well as an individual asset; and minimising enterprise knowledge risk. Keywords: Knowledge economy, knowledge management, knowledge workers, knowledge value, knowledge risk, knowledge worker productivity Dr Kate Andrews is now Principal, KNOWABLE, and an Adjunct Sernior Lecturer at Australias Griffith University. +61 7 3356 0471 kate.andrews@knowable.com.au www.knowable.com.au

The opportunity for HR new rules of the knowledge economy If the role of management is to preserve and build the assets of the organisation, what are the implications of this when the knowledge of employees is an asset and increasingly the prime asset? Many organisations have turned to explicit and systematic knowledge management processes to develop the firms knowledge assets. With this, has come a sharpened focus on the practices that build, apply and deploy knowledge. HRM has the opportunity to make a fundamental contribution to building intellectual capital at the firm level. In this paper we propose four opportunities for HRM to contribute to enterprise achievement in the knowledge economy. What is the knowledge economy? Knowledge creation, use, sharing and retention has always been important. What is new is the significant shift towards a systematic and strategic approach to managing the primary assets of the knowledge economy: people, knowledge processes, and knowledge products. Globally, knowledge has become the most important factor in economic development and knowledge assets are considered essential for economic growth, competitive advantage, human development and quality of human life (Malhotra 2003). Research conducted by the OECD has found that the quality of workers skills and knowledge has a significant impact on the economic and social future of developed nations such as Australia (OECD 2003). Four key points distinguish the knowledge economy:

Knowledge is recognised as important to organisations and is acknowledged as critical to organisational success. Globalisation, rapid change, and competition in a global market of increasingly sophisticated consumers have led organisations to seek a sustainable advantage that distinguishes them in their business environments (Davenport and Prusak 1998). Relationships amongst employees are more complex (Klemp 2001). New types of business-to-business relationships require everyone to develop skills that emphasise interdependence, communication, and the ability to build and maintain strong work relationships. Virtualisation has changed the ways that humans interact, and the need for physical contact has been reduced or in some cases eliminated. Information and communication technology is embedded in most human interactions and business transactions. People are more technologically savvy than at any other time in history (Prusak 2001; Raven and Stephenson 2001). Fundamental IT skills are requisite for all employees but in addition, the speed with which employees can learn new software and technology is critical. Time span of discretion. Speed has become the key to competitiveness, but paradoxically, people need to plan over a longer time span. There is a stronger need for efficiency, analytic thinking, and planning skills (Raven and Stephenson 2001).

Taken together, these characteristics change the landscape in which HRM operates and herald the opportunity for new contributions. Further impetus for a revised role is provided by knowledge-related changes at the firm level. Knowledge at the firm Level For organisations, capability based on knowledge-based resources is critical to sustained competitive advantage. However, simply possessing knowledge based resources will not itself achieve competitive advantage these resources must be managed in ways that allow the organisation to leverage them for strategic advantage (DeNisi, Hitt and Jackson 2003). Knowledge management is the discipline that formalises approaches to understanding and benefiting from knowledge assets at the firm level. The intellectual antecedents of knowledge management include economics, sociology, philosophy and psychology (Prusak 2001). Reflecting this, knowledge management is best thought of as a framework rather than as a single approach a collection of elements that work together in varying combinations to accomplish the goal of leveraging an organisations knowledge capital (Saint-Onge and Wallace 2003). Knowledge management has been described as involving the design, review and implementation of both social and technological processes to improve the application of knowledge, in the collective interest of stakeholders (Standards Australia 2003, 3). Following from this, whilst information technology contributes to effective knowledge management, it alone does not fulfil the promises of knowledge management. Attention to four elements - People, Process, Technology and Content - is essential to optimise results from knowledge (Standards Australia 2003). Nevertheless, it is our experience that in practice Information Technology takes a stronger leadership role in KM than does HRM. The potential for HRM to bolster its contribution to the knowledge agenda is the focus of this paper. HRM in the knowledge economy The nature and characteristics of work in the knowledge economy herald new opportunities for HRM. To maximise benefit from knowledge assets, a fourfold contribution from HRM is proposed. In the knowledge economy, HRM must: Provide expertise in understanding and defining firm-level strategic knowledge capabilities; Develop and manage knowledge workers by leveraging the knowing-learning-doing nexus; Build knowledge value as an organisational as well as an individual asset; and Minimise the organisations knowledge risk (Andrews 2003a) associated with loss of requisite capability and knowledge. Strategic knowledge capabilities The most significant contribution that HRM can make is strategic. We have seen that knowledge capabilities underpin strategy in the knowledge

economy, and HRM practitioners are well placed to understand and define the organisations strategic knowledge capabilities. Strategic knowledge capabilities comprise the core competence (Ulrich and Smallwood 2003) of the organisation (i.e. what it is good at now) and emerging capabilities to sustain future performance. As such they comprise knowledge and skill areas that contribute value to the organisation, offer real or potential competitive advantage, and are hard to replace. Understanding strategic knowledge capabilities is at the hub of HRM in the knowledge era. For example, the aim of recruitment and selection in the knowledge economy is to source high calibre talent possessing a range of skills and capabilities related to the strategic knowledge areas. A key challenge is selecting employees who are capable of contributing to the organisation in a variety of ways now and in the future, rather than simply filling the current vacancy. This requires long-term planning with senior management and the flexibility to hire when the talent is available. The focus is a flexible and agile workforce. Partnering with external organisations for specialist knowledge when required will become more commonplace. The knowing-learning-doing nexus Given that the competitive advantage of an organisation resides in the abilities of its employees, knowledge workers and the capacity they contribute are fundamental to success. Peter Drucker introduced the terms knowledge work and knowledge worker in the early 1960s (see Drucker 1993). However, what would have then been described as a rare type of work is now increasing in prevalence and economic significance (Andrews 2000; Andrews and Delahaye 2000). According to the Australian Bureau of Statistics, knowledge workers now represent 38% of all employed persons in the Australian labour force, and the fastest-growing occupations are in knowledge work (ABS website 2003). Knowledge workers identify and solve challenging and complex problems, relying on imagination and creativity and high levels of education and skills. Importantly, they move beyond applying existing codified knowledge to working with inferences from the body of knowledge (Lockett and Legge 1993). Knowledge work is characterised by ambiguity, complexity, and long feedback cycles. Thus, knowledge workers are employed for their ability to think for themselves and their work involves a high degree of autonomy. Collaboration is also a key element of knowledge work and involves building and maintaining relationships both inside and outside the organisation. The characteristics of knowledge work throw the spotlight on HRM and its management of the knowledge workforce. The autonomy of knowledge workers, their interdependencies with others, and the long feedback cycles typical of their work pose clear challenges for traditional approaches to performance management. Traditional performance management focuses on narrowly-defined tasks or job roles and observable outputs rather than longterm and diffuse contributions. In todays economy, performance management must be re-conceptualised with knowledge work in mind. The process by which people obtain results becomes much less significant and the

focus shifts to managing outcomes, many of which are long-term and difficult to attribute to individuals. For HRM professionals, the key switch is from one of performance management to performance support or performance facilitation. In addition, HRM must tap into the intrinsic motivations of knowledge workers. Knowledge workers are self-motivated, curious and passionate about learning, and have a strong desire for exposure to new ideas and perspectives from both inside and outside their primary knowledge discipline. HRM has a key role to play in creating rich work opportunities. A specific example relevant here is provided by Sveiby and Simons (2002) who noted that after 15 years working in the same field for the same company, professionals experience anger, frustration and burnout. The career plateau (Sveiby 2002) transcends professions and creative workers are thought to be particularly vulnerable. Obviating or minimising the impact of professional burnout is a worthwhile area of focus for HRM. It is noteworthy that whilst technical discipline based knowledge has traditionally defined professional work, additional generic capabilities (abilities to adapt, learn, collaborate and share knowledge) are essential attributes of knowledge work. For knowledge workers, learning and work are intimately connected. Current approaches to training and development that view professional development as on-top-of, or supplementing an employees work are challenged. Learning and professional development is relevant to knowledge workers to the extent that it is intimately connected with the context of their ongoing work. Further, knowledge workers self-motivation to learn suggests that the control over the diagnosis and design of professional development activities are best given to the knowledge workers themselves. Learning and development that is just-in-time to support the current context of the knowledge work will be more common. HRM professionals have a key role to play in supporting the ongoing development of knowledge workers, but many of the current ways in which that support is provided may be revised. Build knowledge value The essence of managing knowledge is to build knowledge value for the organisation and leverage that value for competitive advantage. The value for the organisation is not derived from simply providing access to information. People create value from information by doing something with it (Andrews 2003b). Specifically, applying knowledge to real life opportunities is the source of value creation: leverage comes from making knowledge and expertise available firm wide. For example, an emphasis on sharing knowledge and expertise across the enterprise is likely to improve both efficiency and innovation. Thus, the important shift for HRM is to build knowledge value as an organisational as well as an individual asset. The focus for HRM is the whole organisation as a system, rather than the sum of its parts. In addition to supporting the management of knowledge, HRM practitioners as knowledge brokers have a vital role in terms of knowing what the strategic knowledge

capabilities of the organisation are and where the pockets of skill and expertise lie (both inside and outside the organisation). HRM is uniquely positioned as the facilitator of knowledge and value creation. Building knowledge value spans the breadth of HRM activities. A primary function is the rapid deployment of skill and knowledge. For example, currently the emphasis in training and professional development programs is on the provision, coordination and monitoring of training opportunities for individual employees. This emphasis must shift to developing the strategic knowledge capabilities of the organisation in such a way that they may be rapidly developed and deployed. The challenge for HRM is to offer personalised development opportunities to underpin the organisations needs for responsiveness and agility. Facilitating knowledge transfer between individuals, groups, and from outside to inside the organisation (and vice versa) becomes critical to building organisational capability. Ideally, HRM has established relationships across the organisation based on understanding of business needs. This pivotal role will assist HR to anticipate and plan for emerging knowledge needs. Knowledge risk In addition to leveraging organisational knowledge, a new focus for HRM is to minimise knowledge risk. Knowledge risk refers to the real or potential loss of knowledge either through under-utilisation or loss of valuable hard to replace knowledge when people leave the firm (Andrews 2003a). A topical example of knowledge risk is associated with the aging workforce. A recent investigation (APS Commission 2003) by the Australian Public Service (APS) Management Advisory Committee (MAC) (APS Commission 2003) found that the APS has an ageing profile with an increasing proportion of mature-aged workers, particularly at senior management levels, and declining youth employment. Approximately 30% of APS employees are aged between 45 and 54, compared with 19% a decade ago, and this age group is clustered at higher classification levels. The report also indicates a likely departure of a significant proportion of its current workforce, estimated at 23%, by 2008. Management of this risk begins with an assessment and the development of strategies to mitigate the impact of potential knowledge risk. Traditional approaches to workforce planning in many organisations tend to address current and short-term resource needs for organisational units individually, by developing employees skills and knowledge through training and development, or acquiring skills and knowledge with recruitment. The current approach emphasises head count. From a knowledge management perspective, HRM must focus on head contents instead. In the knowledge economy forecasting future knowledge requirements for the whole organisation in the medium and long-term is of primary importance. In particular, the focus becomes one of identifying where the knowledge risk is. Workforce planning involves mitigating this risk. This requires an intimate knowledge of the strategic knowledge capabilities and how they are supported.

Transforming HRM in the knowledge economy The idea that people and the knowledge they possess is the organisations most valuable asset is not new. The shift in the terminology from over 20 years ago from Personnel Management to Human Resources Management signalled what some claimed was a metamorphosis for the profession. This altered the conceptualisation and practice of HR from a series of ad hoc functions, and evolved it into its role of corporate strategist (Kramar, McGraw and Schuler 1997). The transition was a significant one for the profession of HRM, because it was different from personnel management: it promised strategic contribution through integrated activities that confirmed employees as assets to be nurtured and developed. Today, the central role of individual and organisational capabilities is significantly amplified with the advent of the knowledge economy. Commanding a central role in realising value from knowledge assets is proposed as the new strategic role for HRM. What is the nature of the transition proposed for HRM? How does this translate to the functional areas of HRM? Table 1 presents a summary of the traditional approaches to HRM and the shift required in the knowledge economy. The areas represent the elements of HRM that offer the greatest opportunity to acquire, build and retain organisational capability. Knowledge management presents HRM with the opportunity to become pivotal to the strategic management of the organisation and a catalyst for knowledge creation and building value. This involves more than just relabelling Human Resources - it is a fundamental paradigmatic shift for HRM and senior management. The transformation begins with viewing HRM through a knowledge lens and repositioning the functions in relation to strategic knowledge capabilities. Managing knowledge workers, building value from knowledge, and assessing knowledge risk are also new requirements of HRM in the knowledge economy. We propose that HRM must respond to the key challenges presented by the knowledge economy and command a central position in realising value from knowledge assets as a strategic role for HRM.

Table 1. HRM in the Knowledge Economy HRM Focus

Strategy

Traditional HRM
Develops HR strategy to align with business strategy

HRM in the Knowledge Economy

HRM contributes to business strategy development as the expert on strategic knowledge capabilities Knowledge acquisition, creation, and utilisation is definitional to business strategy Identify, attract and sustain talent Seek out high calibre talent Focus is on a flexible, agile workforce Partner with external providers of knowledge Identify alternative forms of remuneration Develop individual and organisational capability Recognise the nexus between learning, knowing and doing Focus is on personalised capability development embedded in work Build time-to-capability by accelerating learning Identify and share excellent practices Facilitate knowledge networks Build organisational capability by facilitating knowledge transfer A focus on head contents manage knowledge value and risk for the whole organisation Forecast knowledge required in strategic knowledge domains for the medium and long term Rapidly develop and deploy knowledge sets of employees (individuals and teams) Knowledge worker productivity Manage outcomes characterised by long feedback cycles (rather than managing inputs and processes) Retain skilled knowledge workers and key knowledge in strategic knowledge domains Tap into knowledge worker intrinsic motivations Enhance team/business unit performance

Recruitment and Selection

Seek and select resources Describe job requirements and fill vacancies Select from pool of applicants available at the time the vacancy is identified

Training and Development

Develop individual skills and competencies Plan and coordinate training programs Provide and monitor professional development programs Focus is on individual skill acquisition

Workforce Planning

A focus on head count - address current and short-term resource needs by organisational unit Identify current and short-term resource needs Develop skills to meet needs via training and development

Performance Management

Monitor and modify individual performance Reduce or eliminate undesirable behaviours and set desired behaviours to enhance individual performance Reinforce organisational culture Monitor adequate compliance with policies and procedures

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