Professional services industry is one of the knowledge based industries. This is in line with Stewart’s (2001) opinion that “knowledge is what we buy, sell and do”. According to Davenport and Smith (1999), the professional services industry, which includes legal services, auditing and accounting, taxation, consulting and systems integration are very knowledge-intensive because of what these companies sell to their clients is the knowledge and application for each specific client problem.
In the last decade, one of the main driving forces factor in Indonesia professional services industry has been a fast and continuous changes on regulations, standards, practices and methods. The changes stimulate the development of knowledge needs in the professional services industry. The services industry’s ability to manage knowledge is very important in the competitive situation, so that knowledge management (KM) represents a major source of competitive advantage.
Services industry should maximize the utilization of the existing knowledge and creating new knowledge through the application of Knowledge Management (KM) to increase competitiveness. KM represents tools to generate innovation and prepare superior human and structural capital (Budiharjo, 2016). KM initiatives in a services industry shall originated from the need to meet the standards of quality assurance, quality enhancement and quality of staff in providing quality service to clients. Management of knowledge needs require a diverse effective KM.
KM is a process of capturing collective intelligence and expertise within the organization and using it to foster innovation through continuous organizational learning. The ability of firms to manage knowledge is really important to stay ahead in competitive conditions, so KM is a major source of competitive advantage (Prahalad and Hamel, 1990; Nonaka and Takeuchi, 1995; Davenport and Prusak, 1998; Nonaka et al. 2008).
Based on a survey conducted by KPMG (2003), KM has provided value to the company’s business. From the KPMG survey of companies in Europe from 2002 to 2003, 80% of respondents stated that knowledge is strategic assets and 78% of respondents believe they can lose business opportunities if they do not successfully exploit the available knowledge. In terms of financial performance, 50% of respondents stated that financial benefits and benefits have been obtained through the implementation of KM (KPMG, 2003).
In a survey report from The Conference Board (Hackett, 2000) sponsored by Pricewaterhouse Coopers and a Working Group of 12 global corporate executives, huge revenues and profits and increased efficiencies have been achieved by many large companies from KM, such as Buckman Labs, up to 50 percent, Ford Motor Company saved over $ 600 million during 1998 to 2000, The Dow Chemical Company has saved US $ 40 million annually from patent re-use, Hewlett-Packard reduces cost per call by up to 50 percent, etc.
From the survey results of The Conference Board (Hackett, 2000) it was found that the specific objectives of KM in general still focused on internal practices in companies such as knowledge sharing practices and increased productivity.
KM is important in providing core values for professional services firms. As quoted in O’Leary (2008), Allen Frank, former chief technology officer at KPMG stated: “We’re basically a giant brain. For us the knowledge management environment is the core system to achieve competitive advantage. “At KPMG, our best asset is the knowledge that resides with each of our professionals. With 18,000 employees in the US alone, distributed across 120 offices, it’s imperative that we share this knowledge to provide the best service possible to our clients.”
Similarly, Ellen Knapp, a former vice chairman at Coopers & Lybrand, said that all of his assets are knowledge assets (O’Leary, 2008). According to O’Leary (2008), despite the fact that the main assets of professional service companies are the knowledge they can bring and provide to clients, KM is also a need to share knowledge in making professional decision making.
In knowledge based economy environment, the business community increasingly aware of the importance of knowledge as intangible resources to make entities more efficient and effective. In organizations, knowledge is embedded not only in the form of documents and repositories, but also in the routine activities of the entity, business processes, practices and norms in force at the entity (Davenport and Prusak, 1998).
According to Davenport and Prusak (1998), knowledge is a blend of experience, values, contextual information, expert views and expert insights that provide a framework for evaluating and incorporating new experiences and information. Knowledge is information that changes something or someone (Drucker, 1988). In the organization, knowledge is embedded not only in the form of documents and repositories, but also on the company’s routine activities, business processes, practices and norms applicable in the company (Davenport and Prusak, 1998). Specifically, Ackoff (1989) stated that knowledge is an application of data and information so that it can be used to answer the question of “how”.
Knowledge can be classified into two levels which comprise of tacit knowledge and explicit knowledge. Tacit knowledge is the knowledge owned by a person but it is difficult to be expressed or articulated, while explicit knowledge is codified knowledge and it is easily transmitted via languange.
KM perspective which has been developed at this era appeared in various attempts to explain the economic driving forces in knowledge economy era to improve the efficiency and the emergence of KM as an emerging discipline (Wiig, 1997). According to Dalkir (2005), KM is a deliberate and systematic coordination on people, technology, processes, and organizational structures in order to add value through the reuse of knowledge and innovation.
Dynamic knowledge creation model developed by Nonaka and Takeuchi (1995) through SECI matrix, which describes the process of knowledge creation in four types of conversions consisting of Socialization, Externalization, Combination and Internalization. According to Stankosky (2005) there are 4 main pillars in the KM architecture, which are referred to as KM DNA, namely Leadership, Organizing, Technology and Learning.
KM strategy is a common approach to defining the strategy and operational objectives with the KM principles and approaches. This strategy should be consistent with the objectives of KM in the entity and in accordance with the business strategy or business model. Hansen et al. (1999) introduced a KM strategy consisting of the Codification Strategy and Personalization Strategy. KM Strategy from Hansen et al. (1999) based on KM practices obtained in some companies especially engaged in management consulting and accounting firms.
Carla O’Dell (1996) in Dalkir (2005) identify the needs on KM in the organization, namely KM as a business strategy, transfer of knowledge and best practices, knowledge focusing on consumer, personal responsibility on knowledge, intellectual asset management and innovation and creation of knowledge. According to the American Productivity and Quality Center or APQC (2014), KM is defined as the application of a structured process to help stream information and knowledge to the right people at the right time so they can act more efficiently and effectively to seek, understand, share and using knowledge to create value.
The current business environment is more complex because today we have to face an increasing number of subjective knowledge items every day (Dalkir, 2005). Currently we are experiencing a flood of information (information overload) because little time to examine and digest any data and incoming information to be sorted into knowledge for the company. KM is one of the responses to the challenge of managing the complexity of the work environment with information overload (Dalkir, 2005).
Companies must have the ability to build a dynamic repository of knowledge to be able to handle the company’s operations and handle changing consumer demands. Companies should focus on implementing the KM process to support the creation of products and services in order to achieve improved performance.
In various practices and KM literature emerged various KM processes, cycles and core model. This insight uses a systematic framework of Probts et al. (2000) process KM, known as “The building blocks of knowledge management”. The Probts KM process put more emphasis on the practical dimension (Dalkir, 2005) and is a good framework to be practiced (Heisig, 2002).
Probts KM process flow consists of six activities called inner circles consisting of Knowledge Identification, Knowledge Acquisition, Knowledge Sharing, Knowledge Sharing / Distribution, Knowledge Utilization and Knowledge Retention, and two activities called outer circles namely Knowledge Goals and Knowledge Measurement.
Knowledge Goals (KG) point the way for or direction that will be pursued in KM activities, determines which abilities or capabilities should be built on which levels.
Knowledge Identification (KI) is the process undertaken to determine the locations of knowledge and its owner in a transparent manner to all members in the organization.
Knowledge Acquisition (KA) is the process of acquiring the knowledge needed by the organization. This process is performed to provide the knowledge, skills, and expertise that comes from the external of the organization.
Knowledge Development (KD) is the process undertaken in developing skills (expertise) and new capabilities not available yet.
Knowledge Sharing (KS) is a process undertaken to disseminate knowledge in a proper manner, at the right time and to the right people.
Knowledge Utilization (KU) is a process that is done to encourage and facilitate the organization to take advantage of prior knowledge.
Knowledge Retention (KR) is a process of selection, storage and updating of knowledge and expertise that can be utilized in the future.
Knowledge Measurement (KMe) is a process of evaluation and measurement of organizational knowledge. KMe will evaluate and measure the extent to which organizations use and exploit knowledge effectively.
KM Key Success Factors (KSF) and Implementation Barriers
Davenport & Probst (2002) developed the KSF in implementing KM. These factors are leadership, performance measurement, organizational policies, sharing and the acquisition of knowledge, information system structure, as well as benchmarking and training. While Bixler (2002) developed a model of four pillars to describe KSF in KM implementation which is in line with the 4 Pillars of KM architecture developed by Stankosky (2005), consisting of the Leadership, Organization, Technology, and Learning to support KM activities KM in the organization.
The KPMG (2003) survey of European companies published in KPMG’s European Knowledge Management Survey 2002/2003 shows that the main KSF for enterprises in KM implementation is top management support and management involvement in communicating KM initiatives. In the survey, several important KM initiatives were the community of practice, the competence center and the information center.
When a success factor is focused on the human aspect, the majority of practitioners and academics show that the company’s intellectual assets in people are one of the critical determinants of successful KM implementation. The key to success KM first focuses on people and processes, not on cutting-edge technology (Nir, 2002 in Mathi, 2004).
KM is not always easy to put into the organization’s practice. Obstacles or barriers in the implementation of KM has always been exist. Szulanski (1995) found 4 barrier factors in KM namely: ignorance (ignorance), lack of “absorptive capacity”, lack of networks and partners to learn and share knowledge, and less motivated.
Survey conducted by Ernst & Young in 1996 presented some aspects of obstacles in the implementation of KM is related to corporate culture, lack of ownership of employees, information technology, organizational structure, management process and top management commitment. The KPMG Survey (2003) in KPMG’s European Knowledge Management Survey 2002/2003, after two decades of the Ernst & Young survey, presented constraints in KM implementation related to corporate culture, employment priorities, employee competencies and commitments, organizational structure, process integration business and others. From the two surveys above, conducted in two different time spans, it can be seen that the corporate culture factor is still one of the main obstacle factors in the implementation of KM in the company.
In the implementation of KM in Indonesia, several factors are also being the obstacles, namely: (1) corporate culture, (2) employee motivation and competence, (3) technology and (4) leadership. Based on the survey results of large companies in Indonesia, KM measurement and KM process is a significant obstacle (Budihardjo, 2016).
Finally, the recommendations suggested by the Public Accounting Firm Arman Eddy Ferdinand & Rekan (Premier International Associates) to enhance the KM initiatives:
- To appoint a dedicated person to be the head of KM unit as Chief Knowledge Officer (CKO).
- To create the knowledge management portal. This portal should be equipped by knowledge mapping tools and module.
- To create and improve knowledge retention policies. This policies should be coordinated with the knowledge sharing activities. Policies and procedures of knowledge retention when staff resign must also be improved.
- To create community of practice group. Activities of the community of practice shall support the development of professional skills and problem solving activities.
- To enhance creativity and empowerment of employees, among other by improving coaching and mentoring activities.
- To announce the organization’s vision by displaying and disseminating the organization’s vision and values of integrity, professionalism, learning, cooperation and service excellence, as well as developing a work environment that promote “Trust”.