**3. Linking knowledge management to business strategy: Past, present and future**

Every approach to strategy conceives sources of wealth creation and the essence of the strategic problem faced by organizations differently (Teece, et.al., 1997). The competitive forces' approach pioneered by Porter (1980), views the strategic problem in terms of industry structure, entry deterrence, and positioning; game theoretic models see the strategic problem as one of interaction between rivals with certain behavioural expectations about each other; resource based perspective asserts that long run superior performance is associated with the possession of scarce, valuable and inimitable firm-specific resourceshuman, material and physical resources (Barney, 1991; Teece, et. al., 1997; Penrose, 1959; Wernerfelt, 1984; Studdard and Darby, 2011). However, the knowledge based perspective to strategy, which is the crux of this study, postulates that the services rendered by these firm specific resources is basically a function of the knowledge assets possessed by the firm (Alavi and Leidner, 2001; Grant, 1996).

This position stems from the notion that knowledge as a focal asset creates unique advantages for governing economic activities through a logic that is very different from traditional resources' management. Unlike other resources that are governed by the law of

A Stakeholder Model for Managing Knowledge Assets in Organizations 83

model that attempts to link knowledge management to business strategy is a product of this

The balance scorecard is a strategic planning and management model that aligns business activities to the vision and strategy of the organization. It was developed by Kaplan and Norton (1996), as a performance measurement framework that added strategic nonfinancial performance measures to traditional financial metrics to give managers and

According to Kaplan and Norton (1996), the balance score card retains traditional financial measures, but financial measures only tell the story for industrial age organizations for which investments in long term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for driving knowledge based organizations towards the creation of future value through investment in customers, suppliers, employees, processes, technology and innovation (Kaplan and Norton, 1996). The balance scorecard suggests that business strategy must be viewed from four perspectives, and that organizations should develop metrics, collect data and analyze them

The four perspectives are (i) learning and growth perspective- which focuses on employee training (ii) business process perspective- focusing on internal business processes (iii) customer perspective- dealing with the need to satisfy customers (iv) financial perspectivepertains to timely and accurate provision of financial data to investors (Kaplan and Norton,

While the balance score card acknowledges the importance of building the capacities of some intangible or knowledge assets, especially those derived from the three non- financial perspectives in order to promote the future growth of organizations; it fails to see the

From its point of view, strategy design is about integrating the four perspectives in a way that leads to the satisfaction of three business stakeholders. These are investors, customers and employees (Kaplan and Norton, 1992, 1993, 1996). Apart from the fact that other important stakeholders like government and host community are not covered by the analysis of the balance score card; it accords little or no significance to the role that

Hence the balance score card actually hinges on the resource based view, rather than the knowledge based view of the firm. It proposes that through the efficient management of financial and non- financial resources of the firm; investors, customers and employees could be satisfied through a business strategy that seeks their diverse interests. However, this business strategy is not fundamentally derived from the knowledge assets available to the organization; it is more or less designed around financial and non-financial resources of the firm. It is for this reason that the balance score card centers around Schiuma's (2009) second

More recent business models have been proposed for the strategic management of knowledge assets. The Skandia Navigator (Edvinsson and Malone, 1997); Intangible Assets Monitor (Sveiby, 1997); Danish guideline for Intellectual Capital Accounting developed by the Danish Ministry of Science, Technology and Innovation and the Intellectual Capital Report (Ordonez de Pablos, 2004) are examples of these models. Unlike the balance score card, these other models were mainly designed for measuring the performance of organizational knowledge assets, but they had little or nothing to do with the mapping out of the strategic direction of organizations. Organizational strategy design was never the

accumulation of these knowledge assets as the basis for strategy design.

organizational knowledge assets could play in promoting stakeholders' welfare.

executives a more "balanced" view of organizational performance.

second approach.

1996).

relative to each of these perspectives.

approach to strategy design as described above.

diminishing returns; every additional unit of knowledge that is effectively utilized results in a marginal increase in performance (Malhotra, 2000). Consequently, the success of modern corporations is often attributed to the fact that every additional unit of knowledge based product or service would result in an increase in marginal returns (Malhotra, 2000).

This therefore implies that knowledge must be seen as the most important factor of production. However, just as not all forms of labour and material are required by every organization, the type of knowledge required by each business entity must be tailored towards its own unique peculiarities. Consequently, in order to effectively harness knowledge as a factor of production, each business organization must be able to accumulate certain "knowledge assets" that are relevant and specific to its diverse operations (Tongo, 2008; Tongo, 2010).

From a practitioner's perspective, much of the work undertaken on knowledge management has been accomplished without immense change on how organizations do business (Grover and Davenport, 2001). Nevertheless, organizations that have reached the initial plateau of knowledge management now realize that the long run complete success at using knowledge for business advantage requires change in many core aspects of business (Grover and Davenport, 2001). In the first phase, the emphasis was on the knowledge management project. According to Grover and Davenport, projects are a good way to get started with knowledge management, but they are by definition peripheral to the rest of the business. Projects "bottle up" knowledge and treat it as something separate. What firms must do in the second phase of knowledge management is to integrate it with business strategy (Grover and Davenport, 2001).

In this regard, the definition and formulation of a business strategy aimed to support and drive organization's value creation in global business have to consider the nature of knowledge assets and its relationship with business strategy (Schiuma, 2009). This means that the identification of the strategic knowledge assets at the basis of organizational effectiveness needs to be taken into account; both as intrinsic objects of business strategy and as instrumental lever to achieve strategic outcomes (Schiuma, 2009). With respect to the Schiuma's assertion, organizations can adopt two main approaches in designing strategy: (i) managers can explicitly and directly focus their attention on knowledge assets and include their development in the objectives of the business strategy or (ii) managers can focus the strategy definition around business and performance objectives and afterwards identify the strategic organizational knowledge resources grounding the achievement of targeted strategic objectives (Schiuma, 2009).

It suffices to state that while in the first approach, the knowledge assets available to the organization are the main drivers of its strategic direction; the second approach peripherally integrates knowledge assets into the mainstream of business strategy. In other words, implied in this latter approach is the second fiddle which knowledge assets play in relation to other organizational resources; as they are only tangentially considered after other resources must have been tailored towards the achievement of strategic goals. Conversely, the first approach implies that organizational strategic design stems from its knowledge assets. However, very little attempts have been made to link up business strategy to knowledge assets management (Grover and Davenport, 2001). Hence the first approach to strategy design as outlined above by Schiuma has been largely ignored.

Presently, the knowledge management literature has only paid an over arching emphasis on the second approach of strategy design which has precisely relegated knowledge assets to the background. The balance scorecard which is the most renowned contemporary business

diminishing returns; every additional unit of knowledge that is effectively utilized results in a marginal increase in performance (Malhotra, 2000). Consequently, the success of modern corporations is often attributed to the fact that every additional unit of knowledge based

This therefore implies that knowledge must be seen as the most important factor of production. However, just as not all forms of labour and material are required by every organization, the type of knowledge required by each business entity must be tailored towards its own unique peculiarities. Consequently, in order to effectively harness knowledge as a factor of production, each business organization must be able to accumulate certain "knowledge assets" that are relevant and specific to its diverse operations (Tongo,

From a practitioner's perspective, much of the work undertaken on knowledge management has been accomplished without immense change on how organizations do business (Grover and Davenport, 2001). Nevertheless, organizations that have reached the initial plateau of knowledge management now realize that the long run complete success at using knowledge for business advantage requires change in many core aspects of business (Grover and Davenport, 2001). In the first phase, the emphasis was on the knowledge management project. According to Grover and Davenport, projects are a good way to get started with knowledge management, but they are by definition peripheral to the rest of the business. Projects "bottle up" knowledge and treat it as something separate. What firms must do in the second phase of knowledge management is to integrate it with business strategy (Grover

In this regard, the definition and formulation of a business strategy aimed to support and drive organization's value creation in global business have to consider the nature of knowledge assets and its relationship with business strategy (Schiuma, 2009). This means that the identification of the strategic knowledge assets at the basis of organizational effectiveness needs to be taken into account; both as intrinsic objects of business strategy and as instrumental lever to achieve strategic outcomes (Schiuma, 2009). With respect to the Schiuma's assertion, organizations can adopt two main approaches in designing strategy: (i) managers can explicitly and directly focus their attention on knowledge assets and include their development in the objectives of the business strategy or (ii) managers can focus the strategy definition around business and performance objectives and afterwards identify the strategic organizational knowledge resources grounding the achievement of targeted

It suffices to state that while in the first approach, the knowledge assets available to the organization are the main drivers of its strategic direction; the second approach peripherally integrates knowledge assets into the mainstream of business strategy. In other words, implied in this latter approach is the second fiddle which knowledge assets play in relation to other organizational resources; as they are only tangentially considered after other resources must have been tailored towards the achievement of strategic goals. Conversely, the first approach implies that organizational strategic design stems from its knowledge assets. However, very little attempts have been made to link up business strategy to knowledge assets management (Grover and Davenport, 2001). Hence the first

approach to strategy design as outlined above by Schiuma has been largely ignored.

Presently, the knowledge management literature has only paid an over arching emphasis on the second approach of strategy design which has precisely relegated knowledge assets to the background. The balance scorecard which is the most renowned contemporary business

product or service would result in an increase in marginal returns (Malhotra, 2000).

2008; Tongo, 2010).

and Davenport, 2001).

strategic objectives (Schiuma, 2009).

model that attempts to link knowledge management to business strategy is a product of this second approach.

The balance scorecard is a strategic planning and management model that aligns business activities to the vision and strategy of the organization. It was developed by Kaplan and Norton (1996), as a performance measurement framework that added strategic nonfinancial performance measures to traditional financial metrics to give managers and executives a more "balanced" view of organizational performance.

According to Kaplan and Norton (1996), the balance score card retains traditional financial measures, but financial measures only tell the story for industrial age organizations for which investments in long term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for driving knowledge based organizations towards the creation of future value through investment in customers, suppliers, employees, processes, technology and innovation (Kaplan and Norton, 1996).

The balance scorecard suggests that business strategy must be viewed from four perspectives, and that organizations should develop metrics, collect data and analyze them relative to each of these perspectives.

The four perspectives are (i) learning and growth perspective- which focuses on employee training (ii) business process perspective- focusing on internal business processes (iii) customer perspective- dealing with the need to satisfy customers (iv) financial perspectivepertains to timely and accurate provision of financial data to investors (Kaplan and Norton, 1996).

While the balance score card acknowledges the importance of building the capacities of some intangible or knowledge assets, especially those derived from the three non- financial perspectives in order to promote the future growth of organizations; it fails to see the accumulation of these knowledge assets as the basis for strategy design.

From its point of view, strategy design is about integrating the four perspectives in a way that leads to the satisfaction of three business stakeholders. These are investors, customers and employees (Kaplan and Norton, 1992, 1993, 1996). Apart from the fact that other important stakeholders like government and host community are not covered by the analysis of the balance score card; it accords little or no significance to the role that organizational knowledge assets could play in promoting stakeholders' welfare.

Hence the balance score card actually hinges on the resource based view, rather than the knowledge based view of the firm. It proposes that through the efficient management of financial and non- financial resources of the firm; investors, customers and employees could be satisfied through a business strategy that seeks their diverse interests. However, this business strategy is not fundamentally derived from the knowledge assets available to the organization; it is more or less designed around financial and non-financial resources of the firm. It is for this reason that the balance score card centers around Schiuma's (2009) second approach to strategy design as described above.

More recent business models have been proposed for the strategic management of knowledge assets. The Skandia Navigator (Edvinsson and Malone, 1997); Intangible Assets Monitor (Sveiby, 1997); Danish guideline for Intellectual Capital Accounting developed by the Danish Ministry of Science, Technology and Innovation and the Intellectual Capital Report (Ordonez de Pablos, 2004) are examples of these models. Unlike the balance score card, these other models were mainly designed for measuring the performance of organizational knowledge assets, but they had little or nothing to do with the mapping out of the strategic direction of organizations. Organizational strategy design was never the

A Stakeholder Model for Managing Knowledge Assets in Organizations 85

concerned with his own selfish social needs, the firm that employs him can only accommodate the satisfaction of these social needs provided its own profits are not

Hence the "closed system" that both classical management and human relations theorists espoused before the post industrial period was chiefly concerned with satisfying the selfish interests of just the two parties- management and employees. However, the changing business environment that ushered in the post industrial economy and the subsequent need to view organizations as "open systems" made it expedient for organizations to consider other stakeholders (competitors, suppliers, consumers, government, society e.t.c) of their businesses, apart from management and employees that were hitherto relegated to the background. These stakeholders became increasingly important for business survival. It therefore became imperative for businesses to be socially responsible to these stakeholders. Consequently, the theoretical landscape of management was altered during the post industrial period by those who thought that businesses could only survive through paying substantial attention to their entire stakeholders. This implies that organizations must be viewed as "open systems" which can affect and be affected by many stakeholders outside its boundaries. Renowned management scholars like Robert Katz, Daniel Kahn, William Scott, James Thompson, Fremont Kast, James Rosenzweig Michael Hannan, John Freeman e.t.c belonged to this management school of thought (Shafritz and Ott, 1996). Due to constraints posed by paper space it will be impossible to discuss some of the unique contributions of

Nevertheless, one debate that typifies the post industrial period and still lingers in mainstream economics and management pertains to the overall motive of businesses that now have to function as "open systems". Are they required to maximize profits given the

Friedman (2002) posits that profit maximization is the principal responsibility of businesses. According to him, those who proclaim that business must have a "social conscience" are preaching pure and adulterated socialism. For Friedman (2002), profit maximization should

Freeman (2002), disagrees with the above position. Rather he asserts that managerial capitalism is better served by extending the fiduciary relationship from shareholders to include other stakeholders. Business organizations have stakeholders, that is, groups and individuals who benefit from or are harmed by business activities and whose rights are

Albeit, in spite of the heated debates for or against the profit maximization motive of businesses which this article is less concerned about, it is important to note that for the very first time in management history the moral basis or ethical dimension of managing businesses was brought to the fore. And this occurred during the post industrial period. During the post industrial period, organizations were seen as "open systems" that made use of only tangible resources- land, machines, labour, material, money, e.t.c.- to satisfy the diverse interests of their stakeholders. However, the dawning of the 21st century ushered the global business community into an era of the knowledge economy in which knowledge -an intangible resource- has replaced the traditional factors of production to become the most strategic resources needed for satisfying the pluralized interests of business stakeholders

Nations are currently being forced to compete in a global knowledge economy where ideas, information and knowledge have no boundaries, but are instead multiplying at a fast pace

fact that they need to satisfy a number of stakeholders with diverse interests?

tampered with.

these management scholars to the above discussion.

take care of all the social needs of business' stake holders.

violated or respected by corporate actions (Freeman, 2002).

(Chang and Lee, 2007; Houghton and Sheetan, 2000; Hsu, 2009).

preoccupation of these more recent business models. They only provided many disparate indicators that could be used in tracking down the performance of knowledge assets in organizations. Besides the very tenuous relationship that these business models have with business strategy; they were not unanimous in defining the purpose or role of each of the different knowledge assets in relation to all stakeholders' interests. Given this scenario, what then do these business models portend for the effective management of knowledge assets?

First of all, these business models are grossly inadequate in providing the key indicators required for measuring the performance of knowledge assets since they have largely ignored the interests of some organizational stakeholders.

Secondly, ignoring the interests of some stakeholders may threaten the long term survival of organizations and this is precisely what managers of organizational knowledge assets should seek to avoid (Hillman and Kiem, 2001).

Thirdly, without integrating the long term wealth generating capacity of knowledge assets into business strategy it will be impossible to ascertain how they create value for organizations (Andriessen, 2004). In support of this notion, strategy researchers have found out that organizational value creation derives in large part from intangible assets such as organizational learning, grand equity, and reputation (Penrose, 1959; Rumelt, 1984, 1987; Barney, 1986; Spender, 1994; Grant, 1996); and knowledge is arguably the most important intangible asset that firms possess (Penrose, 1959; Winter, 1988).

Therefore because the three points highlighted above would not promote the effective management of knowledge assets towards long term organizational competitiveness; I therefore developed a model that recursively links the different knowledge assets to a business strategy that seeks to satisfice stakeholders' interests. This model is referred to as the "stakeholder model of organizational knowledge assets" in this article. The subsequent section provides the basis for the necessity of the model.
