linking e-business and operating processes: the role of ... · linking e-business and operating...

Linking e-business andoperating processes:The role of knowledgemanagement

by L. FaheyR. SrivastavaJ. S. SharonD. E. Smith

The new business landscape ushered in by e-business has revolutionized business operationsbut, to date, has not integrated well with internalknowledge management initiatives. Through thedevelopment of e-business focused knowledge,organizations can accomplish three critical tasks:(1) evaluate what type of work organizationsare doing in the e-business environment(know-what); (2) understand how they are doingit (know-how); and (3) determine why certainpractices and companies are likely to undergochange for the foreseeable future (know-why).In this paper we take a process perspective andreflect upon the value e-business knowledgecontributes in the enhancement of three coreoperating processes: customer relationshipmanagement, supply chain management,and product development management.Understanding how e-business impacts thesecore processes and the subprocesses withinthem, and then leveraging that knowledge toenhance these processes, is key to anorganization’s success in deriving superiormarketplace results. In this paper, therefore,we highlight the central role knowledgemanagement plays in diagnosing and managinge-business-driven changes in organizations.

E-business embodies the most pervasive, disrup-tive, and disconcerting form of change: it leaves

no aspect of managing organizations untouched, itchallenges long-accepted business models, and or-ganization leaders have little to draw on from theirpast experience to manage its effects. In particular,its capacity to transform business processes is nolonger in dispute. The new technologies at the heartof e-business open up myriad possibilities not justto reconsider the re-engineering of existing processesbut also to design, develop, and deploy fundamen-

tally new ways of conceiving and executing businessprocesses. Senior executives in every organizationthus confront a central challenge: How should theyendeavor to capture, analyze, and project the trans-formational impact of e-business on their organiza-tion’s most critical or core processes? In this paperwe put forward the thesis that knowledge manage-ment (KM) provides one useful vehicle for doing so.

In this paper we pursue two goals: (1) To demon-strate how KM can and should contribute to leadingand managing e-business-driven change in businessor operating processes, and (2) to indicate the ru-diments of an action agenda that executives mightdeploy in order to build a KM-based approach totransforming their business processes. In the section“KM, e-business, and business processes” that follows,we briefly delineate the three domains that are thefocus of this paper—knowledge management, e-bus-iness, and operating processes—and posit linkagesamong them. Then, in the section “E-business-driv-en operating processes: The case for KM,” we dem-onstrate how KM helps our understanding of the e-business implications for operating processes. Next,in the section “Transforming CRM: Two case stud-ies” we contrast the strategies of two companies andillustrate the e-business transformation of CRM (cus-tomer relationship management) and KM’s integralrole in that transformation. In the final section, “De-veloping a knowledge-driven action agenda,” we con-

�Copyright 2001 by International Business Machines Corpora-tion. Copying in printed form for private use is permitted with-out payment of royalty provided that (1) each reproduction is donewithout alteration and (2) the Journal reference and IBM copy-right notice are included on the first page. The title and abstract,but no other portions, of this paper may be copied or distributedroyalty free without further permission by computer-based andother information-service systems. Permission to republish anyother portion of this paper must be obtained from the Editor.

IBM SYSTEMS JOURNAL, VOL 40, NO 4, 2001 0018-8670/01/$5.00 © 2001 IBM FAHEY ET AL. 889

clude the paper by briefly outlining some critical ac-tion items.

KM, e-business, and business processes

We begin with a brief delineation of knowledge man-agement, emphasizing a number of key attributes ofknowledge in any organizational setting and high-lighting some common KM methods. We focus onthe organizational aspects of KM: how individuals andgroups work together to create and deploy knowl-edge. We then outline some key characteristics ofe-business and some business issues they give rise tofor any organization. We conclude this section bybriefly outlining the scope, types, and levels of bus-iness processes.

Knowledge management. KM emerged over the pastfive years or so as a significant management disci-pline with its own body of concepts, language, andpractices.1 The research, consulting, and manage-rial attention devoted to KM indicate a highly visiblepresence in the efforts of firms to create and sustainwinning strategies and to build more efficient andeffective organizations. But what is the focus of KM?Although it clearly still has an emergent tone andtenor, broadly conceived, KM enables, supports, andencourages the following three interrelated foci:

● The processes of discovering or creating newknowledge and refining existing knowledge (de-veloping knowledge stock)2

● The sharing of knowledge among individuals andacross all organizational boundaries (managingknowledge flow)3

● The continued development and use of knowledgeas part of individuals’ day-to-day work, and as partof decision-making (putting knowledge to use)4

And what is the purpose of endeavoring to system-atically manage these three focal points of KM (seeTable 1)? Increasingly, theorists and practitionersstress that knowledge is not managed for its ownsake.5 Rather, the intent of KM is to create, share,

and leverage increasingly higher quality knowledgein order to achieve three interrelated goals:

1. To attain superior external performance (includ-ing marketplace returns and financial results)6

2. To attain superior internal operating performance(including operating efficiencies)7

3. To enhance the quality of life of each individualmember of the organization

An increasingly more sophisticated understandingof the phenomenon of knowledge, embodied in whatwe might label “knowledge principles,” underpinsboth the discussion and the practice of these KM fociand goals (see Table 2). These principles assert, forexample, that KM extends considerably beyond de-sign and use of the tools and technologies involvedin gathering, analyzing, and transmitting data. RatherKM centers upon individuals and groups as the cre-ators and users of knowledge. It plays the leadingrole in developing “deep understanding” from meredata and information. Creating and using knowledgeis a human endeavor: it requires individuals to thinkand to reason—in short, to make sense of the cur-rent and emerging world around them.

Many KM methods have been developed and adoptedby firms to bring individuals together to create, share,and leverage knowledge (see Table 2 for a samplingof established KM methods).8 Some KM methods em-ploy well-established means to effect change in howindividuals see and understand their organizationaland competitive context, such as mentoring andtraining and development. Others have evolved spe-cifically with knowledge creation and use as the fo-cus, such as communities of practice, storytelling, col-laboration, and knowledge mapping. The intent ofall the KM methods briefly noted in Table 2 isstraightforward: to enable individuals and groups tointeract and share with one another as they gather,generate, and interpret data on the current and po-tential world around them and to use the outcomesin their day-to-day work. Understanding the KM prin-ciples and types of KM methods noted in Table 2 un-

Table 1 KM focal points, questions, and goals

KM Develops andEvaluates . . .

By Addressing SuchQuestions as . . .

In Order to . . .

. . . knowledge stock . . . know how . . . increase external performance

. . . knowledge flow . . . know what . . . increase internal performance

. . . knowledge use . . . know why . . . increase quality of life

FAHEY ET AL. IBM SYSTEMS JOURNAL, VOL 40, NO 4, 2001890

derpins the KM perspective advocated in this paperand its contribution to leading the e-business trans-formation of operating processes.

E-business. In spite of its pervasiveness, visibility,and impact, e-business often remains a poorly un-derstood phenomenon. What is e-business? In sim-

Table 2 KM principles and methods

Knowledge Principles Knowledge Methods

Knowledge Is Not Merely Data Mentoring:Communicates the organization’s values, norms, and practices; exposestacit understanding of how the world works

Training and Development:Convey explicit knowledge in many different types of settings; exposeshared tacit viewpointsComprise a group of individuals, often from multiple disciplines or silos,who come together to share what they know, to learn together

A Knowledge Project:Brings a group of individuals together with a declared and visible focus andintent to generate a stock of required knowledge

A Knowledge Repository:Provides a central location for various knowledge products such as bestpractices, or analysis of different topics; individual and groups developproducts for the repository, and they in turn provide inputs for furtherdiscussion and reflection on the part of others.

Communities of Practice:Make up a group of individuals who share the same values and intent,work on a collective project or endeavor, and share openly and criticallywith each other.

Intermediary Roles:Are held by one or more individuals who take responsibility for developinga specific stock of knowledge, a plan to share it with others, etc.

Storytelling:Is done by developing a story about “how some things happen aroundhere” or “what we did in this project” as a way to communicate a sense ofpurpose, to espouse shared values, and to get at more implicit forms ofknowledge

Collaboration:Formally gets a set of individuals to come together around a specific taskor project so that they can learn from each other

Social Network Analysis:Identifies and communicates who speaks to whom, how information istransmitted from one individual to another, or from one group ordepartment to another

Scenarios:Brings individuals both from inside and outside the organization to developexplicit stocks of knowledge about the future (such as how an industrymight evolve or how a set of technologies might converge over time)

Knowledge Mapping:Identifies who knows what, how stocks of knowledge are related to eachother, how the information is stored and where, etc.

Experiments:Allow one or more individuals to do something on a small scale thatotherwise would not be done as a means to learn about (for example) howelectronic connections might work, what data they might generate, or howcustomers or others might engage with different forms of electronicconnections

● Descriptive data are not enough forpurposes of decision-making.

● Analysis is required to turn data intopatterns (insights) and understanding.

Knowledge Needs to Change as the WorldChanges

● Knowledge, as stock, rarely remainsstagnant: beliefs and assumptions changeover time.

● We need to keep what we know in syncwith change in the world around us.

Knowledge Processes Require Reasoning

● Transforming data into patterns (insight)requires inferences and judgments—inshort, thinking.

● There is a need to organize and aid howindividuals and groups engage in thinking,etc.

Knowledge Is Often Implicit or Tacit

● We know more about customers,technology, etc., than we can articulate.

● A lot of “know-how” remains tacit but iscritical to what we do and how we do it.

Knowledge Cannot Be Separated from the“Knowers”

● We cannot separate “what we know” fromthe individuals who know it.

● It is largely impossible to separate what weknow from what we do in our day-to-daywork and lives.

● Knowing and doing are intimatelyinterconnected (to the point that it isterribly difficult to disentangle how theyinfluence each other).

Knowledge is Difficult and Often Impossibleto Manage Directly

● We can only manage knowledge throughinfluencing the “knower.”

● We can manage knowledge indirectly bymanaging the organization: its culture,people, technologies, structures, andsystems, strategies, etc.

● By managing these factors, we canindirectly manage knowledge stock (whatindividuals and groups know) andknowledge flow (how knowledge movesbetween and among individuals andgroups).

IBM SYSTEMS JOURNAL, VOL 40, NO 4, 2001 FAHEY ET AL. 891

ple terms, e-business constitutes the ability of a firmto electronically connect, in multiple ways, many or-ganizations, both internal and external, for many dif-ferent purposes. It allows an organization to executeelectronic transactions with any individual entityalong the value chain—suppliers, logistics providers,wholesalers, distributors, service providers, and endcustomers. Increasingly, e-business allows an orga-nization to establish real-time connections simulta-neously among numerous entities for some specificpurpose, such as optimizing the flow of physical items(raw materials, components, finished products)through the supply chain.

E-business raises a number of critical business is-sues,9 each of which in turn generates distinct knowl-edge issues and challenges specific to the e-businesstransformation of processes—as shall become evi-dent later in this paper (see Table 3).

First, e-business is transforming the solutions avail-able to customers in almost every industry, that is,

the breadth of solutions and how the solutions areobtained and experienced. Consumers can now buybooks, food, clothing, and a lot of other goods overthe Internet in ways that allow distinct forms of cus-tomization. Industrial purchasers can now use theInternet to scour the offerings of many providers andprocure components and supplies in combinations,prices, and delivery schedules that dramatically lowerthe costs of search, speed delivery, and reduce prices.These new solutions open up possibilities for cus-tomer value creation and delivery that were simplyunimaginable a mere three years ago.

Second, the creators and purveyors of the new cus-tomer value propositions represent new types of ri-vals. Traditional booksellers are confronted by ama-zon.com; Merrill Lynch faces E*TRADE. These newentities recast the profile of rivals in many industriesand, partly as a consequence, reshape the contoursand boundaries of most traditional competitivespaces or industries.

Table 3 Sample e-business-generated knowledge issues

E-Business-GeneratedBusiness and

Organization Issues

Leading to (E-Business-Generated) Knowledge Issues and Challenges

Customer solutions Do we know:● What specific types of new customer solutions or new customer functionality e-business

change is giving rise to?● How emerging e-business change will affect future customer solutions?● Why some customers and not others are responding to the e-business-driven solutions of

various rivals?

Rivals Do we know:● Which rivals are successfully leveraging e-business to provide new forms of value for

customers?● How e-business is giving rise to new types of rivals?● Why emergent rivals will reshape traditional industry boundaries using e-business

platforms?

Marketplace strategy Do we know:● What new “strategy models” e-business is giving rise to?● How firms might be able to surpass rivals through the use of e-business?● Why some firms seem to be able to integrate e-business into their current or historic

marketplace strategies and others have great difficulty in doing so?

Assets Do we know:● Which assets increase or decrease in importance due to e-business?● How to use e-business to develop and foster critically required assets?● Why e-business affects the content and importance of specific assets?

Business processes Do we know:● How e-business is reshaping traditional business processes?● How to use e-business to redesign and integrate business processes?● Why e-business is causing such dramatic reconfiguration of business processes?


Third, in part due to the competitive context changesjust noted, the nature and content of strategy, andby implication, the dynamics of marketplace rivalry,are undergoing profound change. No longer canmost firms rely on making modest, incrementalchanges to long-established strategy success formu-las. Charles Schwab, in taking its business on line,reduced transaction prices across the board, daringto cut short-term profits in half in the pursuit of e-business leadership. Strategy in product domains asdiverse as financial services, household furnishings,computers, automobiles, and industrial components,increasingly revolves around inventing new productsolutions, and/or new ways of providing service andsupport to customers, and/or new ways of interact-ing with customers in designing, developing, and de-livering these solutions. In fact, organizations are ad-justing their strategies according to the new notionof “the customer” where customer intimacy, cus-tomer relationship management, 1-to-1 marketing,and the concept of the customer as opposed to theproduct as the new asset of the organization and realcarrier of value, dominate.10 In short, e-business of-fers the platform for new forms of marketplace strat-egy models—a significant element of any firm’s bus-iness model—that will change the competitive rulesof the game.

Fourth, e-business requires firms to refocus and re-configure almost every type of tangible and intan-gible asset. It places an especially heavy premium ondeveloping and leveraging intangible assets, includ-ing many different types of new skills, new forms ofintegrated and intensive relationships with externalentities, new sets of perceptions held by customers,channels, and suppliers, and, of course, significantnew knowledge. Consider the following example.Many new start-up, e-business-based entities suchas Travelocity, E*TRADE, and amazon.com create in-tegrated networks of relationships with channels,end customers, suppliers, providers, and even rivalsthat would not be possible in the absence of the ever-increasing electronic interconnectivity. These rela-tionships afford the e-business-driven organizationthe ability to access and leverage the assets of ex-ternal entities. By connecting the buyers to sellersof travel-related products, Travelocity can now ac-cess and leverage the assets of its supplier firms inthe car rental, hotel, airline, and insurance indus-tries.

Fifth, e-business is dramatically reshaping every tra-ditional business process: from developing new prod-ucts and managing customer relationships to acquir-

ing human resources and procuring raw materialsand components. By enabling major new tasks to beadded to individual processes, e-business broadenstheir scope, content, and value-generating capabil-ity. For example, customer relationship managementhas been essentially reinvented through e-business’sability to access large bodies of heretofore unavail-able data, massage and mine such data in radical newways, and customize the outputs of such analysis tocustomer segments, and in many cases, to individ-ual customers. And, by integrating traditionallylargely separate processes, e-business in effect cre-ates what might well be described as new businessprocesses.

Some knowledge issues and challenges. E-businessgives rise to fundamental issues for both knowledgestock and flow. Because of the extensive impact ofe-business on such pivotal business domains as so-lutions, rivals, strategy, assets, and business processes,organizations have little choice but to develop, share,and leverage extensive knowledge about e-business.At a macro level, as described later, such KM effortsmight focus on key current, emerging, and potentialtrends and patterns in e-business and how they af-fect (or could affect) the firm’s competitive context,strategy, and all key facets of its operations includ-ing assets and operating processes. E-business-fo-cused knowledge can be systematically delineatedand integrated by distinguishing carefully between:

● Know-what (that is, describing current and futuree-business change and its implications for strategy,operations, and competitive context)

● Know-how (that is, what an organization does ormust do to adapt and leverage e-business for stra-tegic and operational purposes)

● Know-why (that is, why e-business is evolving asit is and what accounts for its impacts on compet-itive context, strategy, and operations)

These knowledge distinctions will be elaboratedupon in the context of business processes, the topicto which we now turn.

Business processes. In order to get work done, ev-ery organization creates and aligns specific sequencesof tasks to achieve particular purposes. For exam-ple, a substantial number of related tasks must beexecuted in a specific sequence in order to receiveand fulfill customers’ orders or to purchase and ac-quire components from suppliers. When a numberof tasks cumulate to constitute the execution of somesubstantial organizational (or business) requirement,


they are commonly referred to as a business or or-ganizational process.11 In this spirit, Davenport12 as-serts that “processes are the structures by which anorganization does what is necessary to produce valuefor its customers.” Business processes share a num-ber of characteristics:

● They involve a specific ordering of work tasks oractivities across time and space13

● The collection of tasks and activities together trans-forms inputs into outputs14

● Inputs may take many forms including data andinformation, technology, and people

● They typically manifest an identifiable beginningand end15

● The tasks and activities serve as a focal point inbringing individuals together in order to get workdone

● How the tasks and activities get sequenced, inter-related, and executed can, and typically does,change significantly over time

● Any single process always connects to multipleother processes

Core operating processes. Yet, it is obvious that allprocesses are not equally important to organizationalsuccess. If we accept Drucker’s16 contention that thefundamental purpose of any business is to create cus-tomers, then the central organizational (or business)requirement is to create solutions that attract, win,and retain customers. The processes that directly but-tress and enable the achievement of this overarch-ing requirement—developing, producing, and deliv-ering winning solutions—are commonly referred toas operating processes.

To continually create superior customer value in theform of solutions that customers prefer to those ofrivals, an organization must accomplish three cen-tral organizational requirements or tasks, and thusthree core operating processes:

1. The development of new customer solutionsand/or the invigoration of existing solutions (theproduct development management process)

2. The acquisition of solution inputs (including rawmaterials, components, knowledge, skills, and soforth) and their transformation into desired cus-tomer benefits (the supply chain managementprocess)

3. The creation and leveraging of linkages and re-lationships to external marketplace entities, es-pecially channels and end users (the customer re-lationship management process)

Levels of processes. Processes, by definition, repre-sent ways of doing something—accomplishing sometask or other. Every task, however, can always be in-tegrated into a more encompassing and comprehen-sive task or divided into multiple subtasks. As a con-sequence, any process can always be aggregated intoa higher-level process or subdivided into lower-levelprocesses. Organizations thus must be careful notto lock themselves into any categorization and spec-ification of processes.

In-depth insight into the functioning of any processoccurs only when it is deaggregated into its constit-uent subprocesses. Each subprocess illuminates someaspect of how the process functions. For example,each of the core operating processes—product de-velopment management (PDM), supply chain man-agement (SCM), and customer relationship manage-ment (CRM)—might be divided into a sequence ofsubprocesses that furnishes considerable detail onhow specific subtasks within the process are executed.To cite one illustration, in the case of the supply chainmanagement process, the subprocess, “selecting andqualifying desired suppliers,” requires the careful de-lineation of the subtasks involved in selecting andqualifying desired suppliers. These subtasks mightinclude: identifying the population of candidates;stratifying the population using predetermined cri-teria; collecting preliminary secondary data on manycandidates; collecting primary data from selectedcandidates; developing choice criteria to assess can-didates; collecting supplementary data on candidatesthat survive the first assessment; assessing candidates’organizations; testing candidates’ offerings; choos-ing preferred suppliers; and so forth. The subpro-cess, collecting preliminary secondary data, could befurther subdivided into more microprocesses aroundthe following tasks: identify potential data sources;categorize data sources; screen data sources; iden-tify data categories; collect aggregate data; collectdetailed data; order data into meaningful informa-tion.

Interaction among and integration of processes. Sub-processes are frequently linked directly to one an-other: completion of the task that is the focus of onesubprocess leads directly to the task inherent in thenext subprocess. Thus, in the case of SCM, the sub-process, “establishing and managing inbound logis-tics,” connects directly to “designing and managinginternal logistics.” For example, arrivals of trucks atthe firm’s manufacturing plant carrying raw mate-rials, components, and supplies must be coordinatedwith the plant’s input inventory acquisition, storage,


and allocation. Subprocesses, of course, as this ex-ample illustrates, also directly connect to externalentities such as suppliers, channels, end customers,technology sources, and governmental agencies.

Implications of e-business. The importance of e-busi-ness for processes now becomes clear. It providesthe electronic means to enable connections amongand between processes to take place in fundamen-tally new ways and at such speeds that it literallyopens up the ability to radically reconfigure each coreoperating process, to create new subprocesses withineach core operating process, and to enable newmodes of integration across the operating processes.Indeed, it seems fair to suggest that e-business re-quires managers to think about core operating pro-cesses in fundamentally new ways. The guidingpremise underlying this paper is that KM facilitatesand guides such thinking by serving as a means todesigning, managing, and learning from these newforms of e-business-driven processes.

E-business-driven operating processes: Thecase for KM

Knowledge in and around organizational settings isnever context-free; it is always created, shared, andleveraged within a context shaped by the organiza-tion’s history, culture, mind-set, preoccupations, andits external competitive milieu. We thus begin byhighlighting how a sample of KM methods can be em-ployed by individual and groups of managers to buildtheir understanding of e-business transformation ofoperating processes. We then highlight how KM canassist in some of the key stages in transforming coreoperating processes.

General knowledge approaches. The breadth anddepth of knowledge—both explicit and tacit—of anyconcept or phenomenon always varies dramaticallyacross any sample of individuals or organizations.Our collective research, consulting, and teachingexperience strongly suggests wildly varying breadthand depth of understanding and insight across andwithin organizations with regard to the broad knowl-edge challenges and issues posed by the impact ofe-business on core operating processes (see Table4). In short, managers must develop a general baseof knowledge about the current and potential im-pact of e-business on core operating processes be-fore they can do “deep dives” into the details of howe-business might be leveraged to redesign individ-ual processes or to affect linkages across them.

The general knowledge questions posed in Table 4are intended to encourage a set of managers to en-gage in critical self-examination of the state of boththeir own and their organization’s understanding of:

● How e-business is affecting or might affect eachcore operating process (know-what)

● Whether and how the organization is or might beable to use e-business to affect change in the coreoperating processes (know-how)

● Why e-business is causing the need for change incore operating processes (know-why)

KM offers a number of approaches to developing,sharing, and leveraging the know-what, know-how,and know-why of these (knowledge) challenges (seeTable 1). Our purpose here is not to offer an exhaus-tive listing of KM methods. Rather, it is to illustratehow basic KM methods can enable managers and oth-ers to prepare themselves and the organization tolead and manage the unavoidable transformation ofoperating processes, as a prelude to and integral partof winning in the marketplace and shaping the or-ganization required to do so.

Mentoring. Mentoring serves a critical role in expos-ing individuals at all levels of the corporate hierar-chy to both the explicit and tacit knowledge of in-dividuals with a deep understanding of e-business.For example, the chief executive officer of one well-known large U.S. corporation asked more than 50 topexecutives to subject themselves to being “taught”about the nuances and details of e-business by“young” managers and others much lower in the hi-erarchy.

Self-learning. As in so many other substantive do-mains, many organizations stress the importance ofself-learning as a source of understanding critical e-business know-what, know-how, and know-why is-sues. Such self-learning may be as simple as readingand reflecting on a combination of articles prescribedby experts in the company or external sources suchas leading consultants or other thought leaders.

Knowledge repositories. Some firms develop an elec-tronically accessible repository of relevant knowl-edge. They include descriptions of other firms’ elec-tronically enabled operating processes (know-whatand know-how), opinions and analyses by outside ex-perts such as consultants and specialty professionalfirms on why e-business is shaping customer solu-tions (know-why), or how and why some firms havesucceeded and others have failed to integrate their


operating processes and transform the value they of-fer customers (know-how and know-why). Such re-positories provide the fodder for conversations aboutthe direction and implications of e-business.

Workshops. Some firms have designed workshops in-volving invited speakers, case studies, and other writ-ten materials, to examine the e-business-driven pro-cesses of such firms as Dell Computer Corporation,Cisco Systems, Inc., General Electric Company, andIBM. The intent of these workshops is to systemat-ically create and rapidly diffuse through a broadswath of managers a core stock of knowledge (know-what, know-how, and know-why) about the intercon-nection between e-business and operating processes.

Pockets of expertise. Many firms have now created“deep pockets of expertise” with a pointed focus one-business. A major division of a large financial ser-vices firm established a group of three individualswith significant titles (one a senior vice president,one a director, and one a manager) with the explicit

aim of developing as much knowledge as possible“on the implications of e-business for all facets ofthe business” and to develop mechanisms to shareand disseminate the knowledge.

Communities of interest. Another frequent knowledgegambit is to create a transitory group of individualsfrom across multiple silos, often representing mul-tiple organizational levels,17 to share ideas and per-spectives about e-business, to “talk out loud” aboute-business implications for current or potential strat-egy and organizational issues, and to guide eachother to internal and external e-business “resourc-es.” Such communities of interest, although they maymeet mostly informally (such as in working lunch-es), may do significant analysis of e-business trendsand developments leading to dramatically extendedknow-what, know-how, and know-why for each in-dividual.

Best practices. Exposure to the “best practices” ofother organizations, often in unrelated businesses,

Table 4 Impact of e-business on operating processes

Know-What Know-How Know-Why

Core questions What is the current andpotential impact of e-businesson the firm’s operatingprocesses?

How can the firm use e-business to create andleverage desiredoperating processes?

Why is e-business affectingoperating processes inparticular ways?

Questions re eachcore operatingprocess

How is e-business giving rise to:New subprocesses?Reconfiguring traditionalsubprocesses?Creating new linkages acrosssubprocesses?

How will e-business affectsubprocesses and linkagesamong them in the future?

How is e-business connectingthe firm to external entities?

Does the firm possess theknow-how to:Diagnose the impact ofe-business on eachoperating process?Electronically reconfigureeach operating process?Electronically integrateacross subprocesses?Develop newsubprocesses?

Why does the firm need toelectronically reconfigure eachoperating process?

Why does it need to build newtypes of electronic connectionsto external entities?

Individualsubprocesses

How is e-business affecting eachprocess:What specific technologiesare involved?What organizations are thesource of each technology?How does each technologyafford connections to externalentities?How does each technologyafford connections acrossunits within the firm?What outputs arise from eache-business technology?

Does the firm know how to:Acquire each relevanttechnology?Apply each technology?Augment eachtechnology?Leverage eachtechnology?

Does the firm know why:Each technology “works”?External entities are willing tobe involved in eachtechnology?Each technology leads tospecific results or outputs?


has made many executives aware of the dramatic e-business possibilities for their own organization.Some firms have developed extensive databases, ac-cessible to most individuals in the organization, doc-umenting what other firms did in particular situa-tions such as developing multiple new connectionsto customers (know-what), or the “how-to” involvedin building an e-business-guided supply chain (know-how), as well as analysis of why e-business initiativesfailed or succeeded (know-why). Discussion withincommunities of interest, task forces, or even infor-mal “water-cooler” interactions, enlivened and in-vigorated by the content of best practices, contrib-utes enormously to developing shared tacite-business-related knowledge.

Work assignment. Individuals largely learn by doing;application of knowledge in the “practice” of workprovides the source and reinforcement for tacitknowledge.18 Thus, integrating e-business knowledgedevelopment into work assignments serves as oneof the ultimate ways to generate rapid and extensiveunderstanding of the capacity for e-business to trans-form operating processes. In one insurance firm, amiddle-level manager, with little prior exposure toe-business, was given a three-month assignment todetermine how his business unit could exploit elec-tronic technologies to transform customers’ experi-ence in seeking, buying, and living with the offeringsof the firm. He is now charged with executing thestrategy he proposed.

Doing deep dives. The kinds of questions that mightguide a knowledge-led “deep dive” into each oper-ating process are noted in Table 5. The intent of thesequestions is fourfold:

1. To detail the impact of e-business on each op-erating process as well as integration across theprocesses

2. To highlight the knowledge stock and flow issuesthat emanate from the impact of e-business onthe operating processes

3. To enable managers to determine specific knowl-edge needs (know-what, know-how, and know-why) as input to managing the e-business impacton each operating process

4. To facilitate the development over time of knowl-edge-driven business processes

Among other things, these questions aim to gener-ate a context-rich milieu for managers in which toanalyze how e-business might be utilized to trans-form core processes, and thereby to redefine pro-

cess efficiency and effectiveness. To illustrate anddocument the KM contribution to e-business-led pro-cess transformation, we emphasize the relevance anduse of distinct KM tools and methods to four distinctbut related stages of transformation: Understand-ing the context of process transformation, determin-ing the need for process transformation, developingalternative process designs, and choosing the out-lines of preferred operating processes.

Understanding the context of process transformation.Fundamental elements of know-what, know-how,and know-why pertaining to e-business transforma-tion of core operating processes stem from devel-oping a rich and nuanced understanding of the ma-jor drivers of change in the firm’s competitivecontext. At a minimum, as we shall discuss later, suchknowledge motivates managers to consider radicalprocess change and thus lowers the likelihood thatthey will miss significant marketplace opportunity af-forded by the emergence of new electronic technol-ogies.

Managers can build pockets of know-what aroundspecific domains of current, emerging, and poten-tial change in the firm’s competitive milieu and in-teractions among them. Domains particularly ger-mane to e-business include (for example) valuenetworks, how electronic connections alter the valuepropositions available to customers, and the speedwith which different types of rivals are able to de-velop and introduce new products or variations inproduct benefits and functionalities. A particularcontribution of KM is that it generates knowledgeabout both the future and the present.

Future context. Scenarios have been used as a knowl-edge generation methodology by many firms to de-velop highly intricate and detailed “stories” or plots19

leading to rich and complex descriptions of poten-tial competitive contexts.20 For example, scenarioscan be used to describe how different entities in aspecific value network would be connected to eachother, how collectively they could generate new formsof value for distinct customer segments, and the rolesthat specific entities would play in generating andsustaining customer value.

In either a formal workshop format or a largely in-formal community of interest, managers and otherscan tease through the scenario generated descrip-tions or stories to identify critical know-how: how cus-tomers could interact electronically with various en-tities in the value network; how individual firms could


connect in multiple ways to individual customers;how fast specific types of communications might beaffected using different types of mediums; and howcustomers could interact with vendors to specify anddetail their preferred solution configuration. Insightinto these types of know-how enlightens managersabout the range of operational possibilities that mighthave to be considered as they embark upon trans-forming core operating processes.

Considerations of know-what and know-why abouta competitive context three or five years into the fu-ture unavoidably give rise to know-why issues: Whyare customers shifting from one form of electronicconnection to another? Why are customers seekingspecific types of solution functionality? Why are sometypes of rivals more likely to be successful in build-ing long-lasting customer relationships than others?Why would some traditionally successful strategies

Table 5 Key knowledge issues across the operating processes

Processes Know-What Know-How Know-Why

CRM ● What are your customers’ wantsand needs?

● What “separate” sources ofcustomer knowledge must beunited to maximize theeffectiveness of your CRMproject?

● What elements of your existingoperations must be integrated intoyour e-business processes toimprove your customer focus?

● How are your competitorsinteracting differently with theircustomers?

● How can you collect relevant informationthat can be used to accurately fulfillcustomer wants and needs?

● How is your Web-enabled CRM creatingenhanced customer focus and interactivecapabilities?

● How are you interacting with yourcustomers differently or better as a result?

● How has e-business affected your ability toreact to changing customer needs?

● How has e-business allowed for moreeffective feedback loops? How is thatfeedback incorporated into other processesand into learning?

● Why is the CRM processchanging?

● Why do you need tochange the ways in whichyou interact with yourcustomers?

● Why are your competitorschanging the ways inwhich they interact withcustomers?

● Why have customerexpectations changed?

SCM ● What changes are needed withinthe supply chain to lower costs andincrease responsiveness?

● What significant changes arerealigning your vendor orcustomer relationships (pricing,billing, ordering, processing, etc.)?

● What areas of the supply chaincan benefit from e-businessenablement?

● What types of outsourcingrelationships within SCM havebeen successful?

● How do you use supply chain transparencyto make more informed operationaldecisions?

● How do you enable communication andcollaboration across the supply chain whileprotecting confidentiality and privacyissues?

● How can you leverage our relationshipswith vendors, partners, and competitors tomake SCM processes more effective?

● How can you improve your outsourcingrelationships?

● How have key competitors leveragedcollaborative capabilities in your markets?

● How can you draw value from thetransactions performed across your supplychain?

● Why has the supply chainbecome an even moreimportant piece of yourmarket intelligence?

● Why is it necessary to re-evaluate your SCMprocesses?

● Why are your outsourcingrelationships not asefficient and smooth asneeded?

PDM ● What level of increased speed andaccuracy is necessary to share newproduct ideas across yourorganization?

● What key product developmentprocesses are dependent uponinterenterprise orinterdepartmental collaborationand knowledge sharing?

● What anticipated changes willoccur with e-productdevelopment?

● Have key competitors leveragedcollaborative capabilities in yourmarkets?

● How can we share both the content andthe context for desired new products?

● How have your products changed as aresult of e-business?

● How can PDM learn what types ofproducts/services are truly in demand?

● How can you include customers, vendors,and competitors in the PDM process toyield even greater value to shareholders?

● How can your organization respond toindividual customer needs in addition totheir aggregate demands?

● Why are continual newproducts and new productenhancements becomingmore important to yoursurvival?

● Why is e-businessaffecting productdevelopment in a numberof ways?

● Why will collaborationand communicationenhance existing PDMpractices?


not succeed in particular competitive contexts? Con-sideration of these types of classic know-why foci ina variety of settings over time—workshops, seminars,task forces, regular committee meetings, or even in-formal communities of interest—allow managers toarticulate and test critical knowledge elements in-cluding beliefs, assumptions, and projections that willserve as fundamental inputs to their deliberationsabout core process transformation.

Embedding themselves in distinctly different alter-native competitive futures enables managers to buildconsiderable tacit knowledge about the competitivecontext in which the transformed core operating pro-cesses will play out. For example, in one client en-gagement conducted by one of the authors, individ-ual managers at the end of a scenario workshop wereable to think through and articulate supplier-cus-tomer relationship issues that had not been identi-fied in the specific scenario they developed and pre-sented to their peers. As they did so, a “mentalmodel”21 of the nature of the supplier-customer re-lationship was emerging “between their ears” thatwas more complex and detailed than they could everdescribe and explain.

Current context. It is, of course, easier to develop richdescriptions of a firm’s current competitive context—the focus of many strategy analysis tools and tech-niques.22 However, a KM perspective insists on de-veloping organizational methods and approachesthat allow the data gathered and information gen-erated to become knowledge: to become know-what,know-how, and know-why that is possessed by indi-viduals and groups throughout the organization.

KM, not surprisingly, emphasizes design and inter-action among groups to enable the development andsharing of information, ideas, and perspectives(knowledge flow) on how e-business can transformoperating processes. An ideal focus for a group(whether as a task force, committee, or communityof practice or interest) would be the emergence andevolution of value networks both in the firm’s com-petitive space and in other unrelated industries. Thegroup could develop detailed descriptions of the en-tities in each value network, how they are connected,how they combine to deliver superior value to cus-tomers, as well as the difficulties and problems as-sociated with building, maintaining, and enhancingthe network (know-what). Know-how issues wouldaddress how the firm might go about developing itsown network: who would have to do what and howthe tasks would be connected (know-how). Pursuit

of know-why would steer the group toward deter-mining why a firm chose to develop a value network,why it evolved in one direction rather than another,and why it is able or unable to deliver particular formsof value to customers.

Let us cite merely one other mode of analysis em-ployed by some firms to create and share compet-itive context knowledge. A group can take any oneof the operating processes as its point of departureand then identify and assess how different firms em-ploy e-business to transform the process. For exam-ple, with regard to the PDM process, extensive dataand information could be developed and shared per-taining to:

● The stages (or subprocesses) in each firm’s cur-rent process

● The timing and speed of movement data/ideasthrough the stages

● Connections between specific internal individ-uals/groups and external parties in each stage

● Degree of interdepartmental or cross-subunit col-laboration in each stage

● The bottlenecks evident throughout the process● Linkages to SCM and CRM processes

While such analysis often involves third parties (con-sultants, etc.), the knowledge that is generated en-ables managers to develop and discuss the e-busi-ness transformation of their current operatingprocesses with a degree of insight that otherwise sim-ply would not be possible.

It is necessary to make a final observation here thatis often not widely appreciated. It is especially im-portant to note that from a knowledge perspective,an understanding of alternative future competitivecontexts provides another, and sometimes, criticallens through which to “see” and assess the currentcompetitive context. For example, it became evidentto a set of managers in a large electronics firm asthey went through the process of developing andevaluating a set of scenarios for considering the po-tential convergence of a set of technologies crucialto e-business that their assessment of the firm’s cur-rent e-business capabilities was grossly exaggerated.In particular, the contribution of e-business to thefirm’s operating processes was largely trivial com-pared to what it could be in the not too distant fu-ture.


Determining the need for process transformation. De-termining the extent of desired process transforma-tion requires the careful management of extensivedialog around change in the firm’s competitive con-text as well as change in its internal context. In theabsence of such dialog, individuals and groups withinthe organization are not likely to develop the com-mitment required to embark upon process transfor-mation—they will not understand why it is required.Without such know-why, any major organizationalchange effort is most likely to die of its own iner-tia.23

Analysis of the firm’s internal context complementsunderstanding of the external context. It requires thedevelopment and assessment of extensive know-what, know-how, and know-why pertaining to thecurrent design, functioning, and outcomes of thefirm’s core operating processes—the focus of manyof the issues and questions noted in Table 4. In en-deavoring to develop the requisite knowledge, a KMorientation compels a number of questions: Whopossesses what knowledge about each core process?How can they be connected or brought together?What means can be utilized to get them to share whatthey know? How can they be encouraged or enticedto identify critical pockets of ignorance about eachprocess?

It typically becomes necessary to develop a knowl-edge map: “who knows what about individual pro-cesses and connections among them.” Such knowl-edge maps go beyond the functional roles typicallyidentified in process flow diagrams. For example,they can include descriptions of the nature and qual-ity of the relationships (know-what) between inter-nal units involved in executing adjacent tasks, for ex-ample, between order takers, order processors, andservice deliverers within CRM. They may also describethe history (know-what), nature (know-how), and ra-tionales (know-why) for the interactions betweenfirm subunits and customers and other entities in thevalue net.

Knowledge intermediary roles also become impor-tant as means to capture the more tacit knowledgepossessed by those responsible for executing keytasks within current processes.24 Individuals can betrained to observe key process tasks being executedand to engage with those involved in describing andexplaining what they do, how they do it, and why theyact in one way rather than another.

Developing alternative process designs. Developing oneor more alternative process designs constitutes a cen-tral challenge in process transformation. It requiresknowledge of potential process design configurationsand of the competitive and organizational contextissues noted above (know-what), how the processesmight work (know-how), and why they might suc-ceed or fail in creating and delivering customer value(know-why). Moreover, directly due to the funda-mental nature of the change wrought by e-business,it often requires managers to begin de novo new pro-cess design or the transformation of existing pro-cesses. Starting with the existing processes often in-hibits the scope and depth of the transformationalchange required to create and design truly e-busi-ness-driven processes.

Consider, for example, one financial service firm’sefforts to redesign its CRM. Rather than merely re-design the existing stages in the process, it began byasking how a customer would focus, that is, they en-visioned the customer at the center of every processstage or subprocess and designed a “customer-cen-tric” customer relationship management process asa result. It thus asked two core knowledge questions.What knowledge would it require about customers(their needs, their buying preferences, whether andhow they would like to partner with suppliers, etc.)?In which ways would customers prefer to interactelectronically with their suppliers or partners (theinformation technologies they feel comfortable with;the types of data and information they would like toreceive)?

Because these questions compel managers and oth-ers to develop insights into customers that lie out-side the firm’s current stock of customer knowledge,developing answers, however tentative, necessitatesestablishing a community-like group that is willingto come together and invest the time required to de-velop the requisite data and information. In orderto bring the best available knowledge to the group,and perhaps more importantly, in order to bring theknowledge developed back to many different unitsand levels within the organization, the community-like group should have representatives from manyfunctional areas and disciplines throughout the or-ganization. Such cross-functional groups sometimesmorph into genuine communities of interest or evenof practice: they share their observations, inferences,and insights so that the customer knowledge thatemerges is shaped by and diffused throughout theentire group.


Because these questions pertain to customers, it isoften necessary to stage specific “knowledge events”intended to create and share know-what, know-how,and know-why specific to customers. One firm bringsin a set of the most demanding customers for anopen-ended daylong interaction with managers todiscuss emerging e-business issues from the vantagepoint of the customers. Another firm has createdone- or two-day visits to customers for a small setof managers and key functional staff in order to de-tail the problems and difficulties they currently expe-rience or anticipate in electronically interacting withdifferent suppliers. In each case, explicit know-what,know-how, and know-why is identified, documented,and then later analyzed for its insights into poten-tial process transformation.

A major knowledge consideration often surprisinglyneglected even in generating de novo process designsconcerns the ability of the newly designed processto generate new and useful knowledge for the or-ganization. Electronic connectivity inherently allowsand supports two-way flows of data and information.Thus, a knowledge imperative in thinking throughpotential designs for PDM, SCM, or CRM, and espe-cially interaction across them, is to address how e-business connections can enable collection and anal-ysis of external data, and then how such data andinformation can be leveraged to enhance and sus-tain customer value. The ideal outcome of such at-tention to developing new know-what, know-how,and know-why is that the firm transforms its rela-tionships with customers, and not just the tasks andtheir interaction within the newly designed process.

Choosing the outlines of preferred operating processes.E-transformation of core processes occurs over time.At its core resides a perspective or vision of how theprocesses will function to generate and deliver realcustomer value. Unfortunately, if such perspectivesor visions remain largely tacit in the heads of keyexecutives or groups charged with overseeing the e-business transformation of core operating processes,then others cannot reflect on, challenge, and refinethe knowledge required both to develop and executethe intended process transformation. It becomes es-pecially necessary to do so because the greater thedegree of intended process transformation and thegreater the change in desired customer experience,benefits, and involvement, the more likely that theorganization is in effect creating a new businessmodel. And, the discussion above highlights the twocritical but highly interrelated elements of the bus-iness model: a new way of winning and retaining cus-

tomers (through new forms of customer value gen-erated through electronic connectivity) and a newway of organizing itself to do so (the transformationof core operating processes). The strategic impor-

tance of choosing and committing to a preferred e-transformation of core operating processes suggeststhe need to be especially vigilant in articulating andassessing the knowledge (the know-what, know-how,and know-why) that underpins the acceptance of oneprocess direction rather than others.

Consider the role and importance of a number ofknowledge issues now being tackled by some leading-edge firms as they seek to choose a “preferred di-rection” with regard to how best to integrate SCM andCRM. They are trying to figure out how to bring thetraditional “planning” aspects of SCM—connectingthe linkages in the supply chain—into direct contactwith steps in the CRM chain and to do so in as closeto real time as possible. For example, as CRM influ-ences customers’ choices through its connectivity toindividual customers, information about desiredproduct characteristics needs to be linked to stagesin the supply chain—acquiring raw materials, man-ufacturing specific products, physical distribution,etc. Part of the promise promulgated about integrat-ing SCM and CRM over the last year or so has beenthe potential emergence of “real-time visibility” inthe form of almost instant transmission of requireddata throughout the electronically linked world ofSCM and CRM. But the real excitement has swirledaround the promised emergence of “intelligence re-sponse systems” to decide and respond automaticallyto the changing market conditions conveyed byCRM-generated data. Indeed, some firms now believethey are well on the road to collaborative planning,forecasting, and replenishment (CPFR)—a projectedform of real-time integration between SCM andCRM.25

While such “self-organizing supply chains” remainas yet more aspiration than reality, they indicate the

Some firms now believe they are wellon the road to collaborative planning,

forecasting, and replenishment—aprojected form of real-time

integration of SCM with CRM.


importance of the need to identify, clarify, and as-sess the fundamental know-what, know-how, andknow-why associated with their potential emergence.To emphasize merely one facet of know-how, con-sider the human issues involved in CPFR. The “col-laborative” aspects of CPFR raise all the difficultiesthat organizations traditionally encounter in man-aging the human side of introducing new technol-ogies, not to mention radically transforming howwork gets accomplished as part of core operating pro-cesses. Social network analysis can help identify whotalks to whom and who should talk to whom, as onemeans to determine who should be involved in face-to-face interaction to oversee development and de-ployment of the electronic links mandated by CPFR.As these individuals assess the need for and poten-tial of CPFR, they can create a knowledge repositoryto enable others (as well as themselves) to access theknow-what, know-how, and know-why they create.One element of the repository might be descriptionsof best practices (a combination of know-what andknow-how) obtained through visits to other firms orthrough third parties such as consulting firms or tech-nology providers. Their assessment of why different(potential) elements of CPFR do work or might notwork (know-why) become essential to understand-ing judgments and inferences about recommended(or rejected) action plans.

As customers become more and more part of thecollaboration at the heart of CPFR, and other e-busi-ness-driven process changes, then issues concernedwith developing and enriching human relationshipswith individual customers, and not just two-way dataand information transactions, must take center stage.The human side of these customer relationships thusbegs for attention to “touch” and “trust.” KM meth-ods that allow interaction across company bound-aries such as many forms of communities, involvingdifferent types of interaction, enable a cross-sectionof employees to deal face-to-face with customer per-sonnel, sometimes over considerable periods. Evenwith consumer goods firms, such may be the case.One firm has begun to develop communities of con-sumers around a set of interactive technologies thatalso allow verbal interactions and get-togethers onspecial occasions.

Transforming CRM: Two case studies

Let us examine how the customer relationship man-agement (CRM) process has changed with the emer-gence of a networked economy by comparing twovery successful companies—Compaq Computer Cor-

poration in the early 1990s and Dell Computer Cor-poration in the late 1990s. The discussion here il-lustrates the role and importance of the four centralquestions noted in the previous section. This discus-sion of Compaq and Dell marketing and businesspractices is based on information in the businesspress. There has been an extensive discussion ofDell’s direct business model and the difficulties facedby firms with more traditional models (such as Com-paq) in copying and/or responding to Dell’s compet-itive advantage. Finally, the strategy discussed herefor each company is for illustration purposes, andmay not represent the company’s current businessstrategy.

Traditional CRM. The CRM process has two funda-mental objectives: customer acquisition and cus-tomer retention. The “traditional” CRM process, em-phasizing a sequence of interrelated tasks, isillustrated in Figure 1. Customers initially are at-tracted through advertising and promotions. Thesecommunications activities result in the developmentof brand awareness and associations. Brands that aresuccessful in these dimensions enter a person’s con-sideration or choice set via two means—top-of-mindawareness (or evoked set) or deals and pricing in-centives. Customers choose from among these al-ternatives based on perceived value determined bya brand’s benefits relative to its price. Subsequentrepurchase is based on product performance (wasthe advertised promise delivered?) and support ser-vices.

In the case of Compaq, the company positioned it-self as an innovative competitor and communicatedproduct quality to prospective customers through su-perior performance and unique features. Compaq’ssuccess was based on both successful branding andchannel dominance (the latter afforded point-of-pur-chase presence and a superior service network). Ittargeted three major segments in the marketplace:corporate, small business, and home markets. In thelate 1980s and early 1990s it gained market share tobecome a leading manufacturer worldwide.

Compaq’s backyard rival Dell followed a direct sales,made-to-order strategy. It developed the Dell brandimage based on its own business (process) model.Customers paid only for features they wanted (made-to-order). They got good quality at a reasonable price(value) and they received on-site service. Dell tar-geted primarily corporate buyers who were servicesensitive. The company focused on product quality


to avoid having to service failed products. But, rel-ative to Compaq, its margins were lower.

Enter electronic connectivity. The advent of the In-ternet gave rise to a competitive context that was bet-ter suited to more quickly adapting and transform-ing Dell’s made-to-order business model comparedto the traditional made-to-plan business model. Elec-tronic connections afforded by the Internet enableda communications channel as well as a transactionschannel. Dell promptly began migrating its call cen-ter-based sales to on-line sales. The Dell Online e-marketing model is summarized in Figure 2.

The customer is attracted to the Dell Web site viaadvertising and Web links to both corporate clientsand via affiliates in its value network (e.g., Yahoo!).Potential customers can interact with Dell Onlineto obtain product information and help in under-standing feature benefits and the value (and cost of)options. Subsequently, they have the opportunity toview special offers, and to modify or configure thoseoffers to their own liking. They review and confirmtheir order in the next step, on-line transaction pro-cessing, thereby avoiding any errors and preventingcostly disputes that can occur due to human process-ing errors. They can track their order (via FederalExpress) through the assembly and delivery process,where they are assigned a sales representative (e-mail and phone number included) who can assist

them through the delivery process. Subsequently,they have around-the-clock help via on-line supportservices that include answers to frequently askedquestions (FAQs), solutions to potential problems,and access to on-line user chat rooms that foster auser community.

E-business-based customer value. How is the DellOnline CRM process different from the traditionalCRM approach? It affords a faster and closer rela-tionship between Dell and its suppliers and custom-ers. If problems develop (say) due to defective com-ponents, Dell is able to respond quickly. Further, itsdirect communications links to its suppliers resultin problem resolution and prevention of future prob-lems. By virtue of direct contact, Dell has bettercustomer knowledge. This can be leveraged into ad-ditional business benefits such as development ofcross-selling programs, integration of customer in-puts in the design and delivery process, and the like.

Role of KM in transforming Dell’s CRM process.Dell has developed several approaches to capture,disseminate and leverage marketplace knowledge totransform CRM and its performance. As we shall see,these approaches rely on development and sharingof knowledge, both internally (with employees acrossoperating units and levels) and externally (with sup-pliers and customers). Examples include the follow-ing.

Figure 1 Traditional customer relationship management program

SUPPORT AND SERVICES(EXPERIENCE/INTANGIBLES)

AWARENESS ASSOCIATIONS,REPUTATION

CONSIDERATIONSET = DEAL SETAND EVOKED SET

CUSTOMER VALUE

ADOPTION

ADVERTISING PROMOTIONS

LOYALTY

(SEARCH/TANGIBLES)


From customer data to insight. The company analyzescustomer orders to extract patterns (information) re-vealing popular combinations of product features.It then advertises and promotes these already pop-ular combinations to morph the made-to-order or-der-delivery process into one that approximates amore efficient made-to-plan approach with marginalcustomizations at the last minute. For example, cus-tomers modifying advertised special configurationsdo so at prices that reflect the higher process costsrelated to features they wish to modify.

From information to relationships. Due in part to itsdetailed information on each customer, Dell isswitching from being a product sales company to onethat cross-sells related products and services. Theelectronic and personal (sales force and service) in-teractions allow Dell to focus on the lifetime valueof multifaceted relationships rather than on puretransactions. Cross-selling and up-selling provide themeans to capture a greater “share-of-wallet” of in-dividual customers. Multiple relationships result inhigher customer switching costs and therefore loy-alty. Dell thus develops distinct know-what (under-standing of and insight into each customer), know-how (how to cross-sell and up sell), and know-why(why customers do not switch to rivals) as the basisfor establishing and sustaining relationships that goconsiderably beyond (but are facilitated by) elec-tronic connections.

From individual process knowledge to shared under-standing of the business model. The Dell Online bus-iness model aims to improve performance in a num-ber of related areas: customizing the offering forcustomers, minimizing costs and investments,streamlining and speeding operations, and maximiz-ing asset turns. The electronic-enabled transforma-tion toward a build-to-order business model contrib-utes to managing the potential conflicts inherent inthese performance goals. However, integrating andcoordinating the effort to achieve these goals requireshigh levels of shared tacit knowledge across the in-dividuals and teams directing core-operating subpro-cesses. The Dell University, through its training andeducation programs, ensures that each Dell em-ployee understands the Dell Online business modeland his or her own role within that model. Thus, sub-stantive pockets of know-what (e.g., the trade-off be-tween cost and speed and quality), know-how (e.g.,how to respond to customer inquiries and com-plaints), and know-why (why it is important to in-teract with customers in specified ways in order tonurture customer loyalty) underpin and guide whatbecomes over time a “natural” way of behaving andacting.

From tacit knowledge to inimitable customer-based ad-vantage. Although the structure and sequence of ma-

Figure 2 Customer relationship management in the new economy: The Dell Online e-marketing process

E-LIVERY

INTERACT—SERVE AND SUPPORT

E-XCHANGE

TRANSACT AND PAY

E-COMMUNICATE

INTERACT — INFORM AND INFLUENCE

E-CONFIGURE

CUSTOMIZE

E-MARKETING MODELS

E-LINK

ATTRACT

E-EXPERIENCE

RETAIN

PERSONALIZE


jor elements of the Dell Online business model arewell known and recognized as advantageous in thenew economy, competitors have not been able tocopy it. In part, their legacy of distribution channelrelationships has prevented a smooth transition toa build-to-order business model. However, the tacitprocess knowledge shared by Dell employees just dis-cussed is not easily replicated by rivals, and may pos-sess such “causal ambiguity” that is not understand-able by rivals, much less available to them. Wheresuch tacit knowledge can be created, nurtured, andprotected, sustainable customer-based advantage ismore likely.

From internal processes to value net advantage. E-busi-ness transformation of core operating processes, asnoted previously, opens up possibilities for connec-tivity with value network members that both extendthe reach of the firm’s processes to many externalentities and enable distinctive new forms of valuecreation for customers. Instant sharing of customerorder data with suppliers enables others in the valuenetwork to analyze such data to improve their ownforecasting and inventory control processes, therebyenabling Dell to become a better partner and to pro-vide superior customer value. Rapid sharing of ac-curate and focused information contributed both tofaster order-delivery cycle times and reduced work-ing capital requirements (in part due to lower inven-tory). It also led to outsourcing of subassemblies andtherefore reduced investments in fixed costs.

From connectivity to knowledge in use. Dell accumu-lates data on frequently asked questions (FAQs) andfrequently cited customer problems. Again, it trans-forms such data into shared know-what (commonelements in the questions and problems), know-how(how best to deal with the issues surfaced by the ques-tions and problems), and know-why (why providinghelp to customers is important). Such knowledge inturn informs PDM subprocesses: what aspects of func-tionality need to be addressed; how reliability mightbe enhanced; and which features might be added ordownplayed. Sharing such knowledge enables Dell’sfront-line employees in CRM to resolve customer con-cerns in real time. Moreover, such knowledge servesas a crucial input to multiple forms of electronic in-teraction with customers: the help desk, discussionforums, access to self-support tools, and trouble-shooting flowcharts. These self-help mechanismstake advantage of networked knowledge.

A knowledge-driven action agenda andconcluding comments

The foregoing discussion suggests a number ofknowledge-driven initiatives or projects that seniormanagers can direct to enable e-business transfor-mation of operating processes. From a KM perspec-tive, many of these initiatives can, and perhaps shouldbe, executed simultaneously: they become means togenerate, share, and leverage e-business-relatedknowledge throughout the organization.

First, develop a knowledge project to review and as-sess the extent to which KM, by design or unwittingly,is contributing to the e-business transformation ofoperating processes. It is usually necessary to developa community of interest around this type of “high-level” knowledge project. Such projects typically ne-cessitate the guidance of one or more individualsskilled in the art of generating and disseminatingknowledge.

A related knowledge initiative involves detailing thedata and information flows around ideal or desiredoperating processes. A group of individuals, prefer-ably with wide representation across the key func-tional areas and disciplinary silos, literally designse-business-transformed core operating processes denovo. In one company, this knowledge initiativequickly demonstrated that each core operating pro-cess had to begin and end with customers: each pro-cess would be a series of electronic data flows, oftenoccurring in real time, or close to it. It became clearto the team involved that the traditional notion ofa process with clear delineation and distinction be-tween inputs, transformation, and outputs was a relicof pre-electronic times. This learning and its impli-cations, of course, reflected significant new know-what, know-how, and know-why.

One knowledge initiative may be mandatory in or-ganizations that do not yet fully appreciate the op-portunities and threats inherent in the electronicallyconnected world. It involves the development of aset of three or four scenarios that lay out in glowingand unambiguous detail how the competitive con-text of the firm could evolve over a three-to-five-yeartime period, how e-business might place differentroles in these evolutions, and what the strategy andorganization implications would be for the firm. Sce-narios possess the great merit of allowing external“voices” to be heard: customers, channels, suppli-ers, technology experts, and others can be involved


in collaborative activities to build the stories at theheart of each scenario.

At the other end of the knowledge spectrum, man-agers in all functions and disciplines, and at all lev-els, can design and execute experiments as a meansto build and leverage e-business knowledge. Eachexperiment becomes the means to develop explicitknow-what, know-how, and know-why that can thenbe shared with others in the organization, oftenthrough knowledge repositories, best practice expo-sure, or as part of presentations in ongoing meet-ings, events, and projects. For example, some com-panies experiment with individual customers inlearning from somewhat customized electronic two-way communications and interactions.26

A different form of knowledge initiative finds manyfirms developing deep pockets of expertise arounde-business,27 examples of which were discussed ear-lier. Indeed, it is becoming increasingly necessary todevelop such expertise in two related ways: exper-tise relevant to the functional tasks inherent in tra-ditional departments or units (such as marketing,manufacturing, human resources) but also expertisethat focuses on the integration of such functions ortasks across traditional operating processes such asPDM, SCM, and CRM. In either case, it has becomenecessary for many managers and others, both withinand outside the pockets of expertise, to embark uponextensive self-learning: to continually develop theirown understanding of e-business and its implicationsfor operating processes, their own areas of specialty,and indeed, their day-to-day job.

In summary, KM provides an organizational frame-work that contributes significantly to understandingand guiding the e-business transformation of oper-ating processes. KM methods offer multiple meansto develop the human connections that must not onlysurround the electronic interconnectivity, but thatin turn, enable insights and intelligence to emanatethat are fundamental to the unavoidably tough deci-sions that characterize moving (and many times mov-ing rapidly) to e-business-driven operating processes.

Acknowledgments

The authors would like to express their appreciationto Michael Fontaine for his contributions toward theintellectual foundation of this paper and its support-ing research. We also wish to thank Gregg Bell forhis insights and suggestions on the subject.

Cited references and notes

1. A number of recent books indicate the breadth and depthof the KM literature that has emerged in the last few years.See, for example, T. H. Davenport and L. Prusak, WorkingKnowledge: How Organizations Manage What They Know, Har-vard Business School Press, Boston, MA (1998); D. Cohenand L. Prusak, In Good Company: How Social Capital MakesOrganizations Work, Harvard Business School Press, Boston,MA (2001); G. Von Krogh, K. Ichijo, and I. Nonaka, EnablingKnowledge Creation: How to Unlock the Mystery of Tacit Knowl-edge and Release the Power of Innovation, Oxford UniversityPress, New York (2000).

2. I. Nonaka, “The Knowledge-Creating Company,” HarvardBusiness Review on Knowledge Management, Harvard Busi-ness School Press, Boston, MA (1998), pp. 21–45.

3. D. Leonard-Barton, Wellsprings of Knowledge: Building andSustaining the Sources of Innovation, Harvard Business SchoolPress, Boston, MA (1995).

4. T. H. Davenport and L. Prusak, Working Knowledge: How Or-ganizations Manage What They Know, Harvard BusinessSchool Press, Boston, MA (1998).

5. See Reference 4, p. 179.6. M. Hansen, N. Nohria, and T. Tierney, “What’s Your Strat-

egy for Managing Knowledge?” The Knowledge ManagementYearbook 2000–2001, Butterworth-Heinemann, Woburn, MA(2000).

7. P. Drucker, “Knowledge-Worker Productivity: The Big-gest Challenge,” The Knowledge Management Yearbook2000–2001, Butterworth-Heinemann, Woburn, MA (2000).

8. It is worth emphasizing here again that our focus in this pa-per is on what we term organizational methods, that is, meth-ods designed explicitly to bring individuals together in theprocess of generating, sharing, and leveraging knowledge,rather than technological methods, that is, technologies to cap-ture, mine, and transmit data.

9. The five issues we discuss here—solutions, rivals, strategy,assets, processes—are typically noted in general books on e-business, but they most often receive little systematic atten-tion. See, for example, A. J. Slywotzky and D. J. Morrison,How Digital Is Your Business, Crown Business, New York(2001); D. Tapscott, The Digital Economy: Promise and Perilin the Age of Networked Intelligence, McGraw-Hill, New York(1996); D. S. Pottruck and T. Pearce, Clicks and Mortar, Jos-sey-Bass, San Francisco, CA (2000); F. Newell, Loyalty.com:Customer Relationship Management in the New Era of Inter-net Marketing, McGraw-Hill, Inc., New York (2000).

10. R. Glazer, “The Evolution of E-Business: A Theoretical andEmpirical Analysis,” internal IBM report, April 2001, p. 14.

11. See, for example, M. Hammer, Beyond Reengineering: Howthe Process-Centered Organization Is Changing Our Work andOur Lives, Harper Business, New York (1996).

12. T. Davenport, Process Innovation: Reengineering Work ThroughInformation Technology, Harvard Business School Press, Bos-ton, MA (1993).

13. T. H. Davenport, S. Jarvenpaa, and M. Beers, “ImprovingKnowledge Work Processes,” Sloan Management Review 37,No. 4, 53–66 (Summer 1996).

14. D. Garvin, Building a Learning Organization, Harvard Bus-iness School Press, Boston, MA (1998).

15. See Reference 11.16. P. Drucker, The Practice of Management, Harper and Row,

New York (1954).


17. E. Lesser and L. Prusak, “Communities of Practice, SocialCapital and Organizational Knowledge,” Knowledge andCommunities, Butterworth-Heinemann, Woburn, MA (2000).

18. See I. Nonaka and H. Takeucki, The Knowledge Creating Com-pany, Oxford University Press, New York (1995).

19. See, for example, P. Schwartz, The Art of the Long View: Plan-ning for the Future in an Uncertain World, Doubleday Cur-rency, New York (1981).

20. See, for example, Learning from the Future: Competitive Fore-sight Scenarios, L. Fahey and R. M. Randall, Editors, JohnWiley & Sons, Inc., New York (1998).

21. P. Senge, The Fifth Discipline: The Art and Practice of theLearning Organization, Doubleday Currency, New York(1990).

22. For a recent overview of strategy analysis frameworks andmethodologies, see The Portable MBA in Strategy, second edi-tion, L. Fahey and R. M. Randall, Editors, John Wiley & Sons,Inc., New York (2001).

23. J. B. Quinn, J. Baruch, and K. A. Zien, Innovation Explosion:Using Intellect and Software to Revolutionize Growth Strate-gies, The Free Press, New York (1997).

24. J. Sharon, L. Sasson, A. Parker, J. Horvath, and E. Mos-brooker, “Identifying the Key People in Your KM Effort,”Knowledge Management Review 3, No. 5 (2000).

25. For a brief discussion of these developments, see, P. Ody,“Putting Everything into the Picture Will Unlock Crown Jew-els,” Financial Times Survey; Supply Chain Management (June20, 2001), p. 1.

26. See, for example, D. Mundel and C. Wiecha, “Managing Cus-tomer Knowledge,” White Paper, IBM Institute for Knowl-edge Management (August 2000).

27. See, for example, A. Satyadas and U. Harigopal, “CognizantE-Business Solutions: Linking the New E-Business Wave withKnowledge Management,” internal IBM paper (2001).

Accepted for publication June 26, 2001.

Liam Fahey 115 Lincoln Street, Needham, Massachusetts 02492(electronic mail: [email protected]). Dr. Fahey is adjunct profes-sor of strategic management at Babson College and visiting pro-fessor of strategic management at Cranfield University (U.K.).Previously, he served on the faculty at the Kellogg School of Man-agement at Northwestern University and at Boston University’sSchool of Management. He is the author or editor of eight booksand over 40 articles or book chapters. He holds B. Comm. andM.B.S. degrees from University College Dublin and a Ph.D. (bus-iness administration) degree from the University of Pittsburgh.

Rajendra Srivastava The University of Texas at Austin, McCombsSchool of Business, Department of Marketing, CBA 7.202, Austin,Texas 78712-1176 (electronic mail: [email protected]). Dr. Srivastava is the Jack R. Crosby Regent’s Chairin Business and Professor of Marketing and Management Sci-ence and Information Systems at the McCombs School of Bus-iness, University of Texas at Austin. He is also the Daniel J. Jor-dan Research Scholar at the Goizueta Business School, EmoryUniversity. He holds a B. Tech. (Honors) degree in mechanicalengineering from the Indian Institute of Technology, Kanpur, andan M.S. degree in industrial engineering from the University ofRhode Island. His M.B.A. and Ph.D. (business administration)degrees are from the University of Pittsburgh.

Joyce Shems Sharon 15 Pinewood Avenue, Natick, Massachu-setts 01760 (electronic mail: [email protected]). Ms.Sharon, formerly an associate consultant with the IBM Institutefor Knowledge Management in Cambridge, MA, is currently pur-suing her master’s degree in international business relations atthe Fletcher School of Law and Diplomacy at Tufts University.In her former position she was responsible for leading and con-ducting cutting-edge knowledge management and e-business re-search. She specializes in the areas of knowledge intermediationas well as knowledge management and e-business.

David E. Smith IBM Global Services, 11400 Burnet Road, Aus-tin, Texas 78758 (electronic mail: [email protected]). Mr. Smithis an executive consultant with IBM’s E-Business Strategy andChange group and formally an executive consultant with IBM’sWorldwide Knowledge Management competency effort. Mr.Smith specializes in the areas of knowledge management and e-business, knowledge transfer, helping organizations align knowl-edge practices within their current organizational structure, andfacilitating knowledge practices through GroupWare and the In-ternet. He has worked over 15 years in business and informationtechnology areas solving complex business problems.


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