EXECUTIVE SUMMARY

This case study is aimed at developing an understanding of the various aspects and issues concerning the implementation of a knowledge-enabled customer relationship management (KCRM)  strategy  at a telecommunications  company  in a developing country. The KCRM program was composed of three major parts: enterprise data warehouse (EDW), operational customer relationship management (CRM), and analytical  CRM.  The  KCRM  initiative  was  designed  to  automate  and  streamline business processes across sales, service, and fulfillment channels. The KCRM program is targeted at achieving an integrated view of customers, maintaining long-term customer relationship,  and enabling  a more  customer-centric  and efficient  go-to- market strategy. The company faced deregulation after many years of monopoly. The company initiated a customer-centric knowledge management program, and pursued understanding customers’ needs and forming relationships with customers, instead of only pushing products and services to the market.  The major result of the case study

was that the KCRM program ended as an Information and Communications Technology (ICT) project. The company did not succeed in implementing  KCRM as a business strategy, but did succeed in implementing  it as a transactional  processing system. Several challenges  and problems  were faced during and after the implementation phase. Notable among these was that the CRM project complexity and responsibilities were underestimated, and as a result, the operational CRM solution was not mature enough to effectively and efficiently automate CRM processes. Changing organizational culture also required a tremendous effort and pain in terms of moving toward customer- centric strategy, policy and procedures,  as well as sharing of knowledge  in a big organization with many business silos. Employees’ resistance to change posed a great challenge to the project. As a conclusion, the KCRM case study qualified as a good case of bad implementation.

INTRODUCTION

Business organizations are experiencing significant changes caused by the grow- ing dynamics of business environments. Organizations are faced with fierce competitive pressures that come from the globalization of economies, rapid technological advance- ments, rapid political and governmental changes, and increases in consumer’s power, sophistication, and expectations as customers become more knowledgeable about the availability and quality of products and services. Such environmental challenges place a huge demand on firms to remain flexible, responsive, and innovative in delivery of products and services to their customers (Drucker, 1995; Teece, Pisano, & Shuen, 1997).

The resource-based view of the firm recognizes the importance of organizational resources and capabilities as a principal source of creating and sustaining competitive advantage in market competition. According to this approach, resources are the main source of an organization’s capabilities, whereas capabilities are the key source of its competitive advantage (Grant, 1991; Davenport, 1995). Establishing an effective knowl- edge management capability is a challenge in 21st-century organizations.

The importance of customers to business firms has created tough “rivalries” among competitors over acquiring new customers or retaining/expanding  relationship with current ones. In order to build good customer relations, it is necessary for companies to serve each customer in his/her preferred way, therefore requiring the management of “customer knowledge” (Davenport, Harris, & Kohli, 2001). Customer Knowledge (CK) is increasingly becoming a principal resource for customer-centric business organiza- tions. As a consequence, acquisition and effective usage of such knowledge is increas- ingly becoming a prerequisite for gaining competitive advantage in today’s turbulent business environments.

Establishing  an effective KM initiative is a challenge for most organizations. Particularly difficult is the capture of tacit knowledge that resides primarily in the heads of experienced  employees.  Knowledge  involves three overlapping  factors, namely, people, organizational processes (content), and technology (ICT) and can be ap- proached in two ways:

•          Personalization: human-based information processing activities such as brain- storming sessions to periodically identify and share knowledge

•          Codification: systematic processes for regularly capturing and distributing knowl- edge

The personalization strategy is more focused on connecting knowledge workers through networks,  and is better  suited  to companies  that face one-off and unique problems that depend more on tacit knowledge and expertise than on codified knowledge. The codification strategy is more focused on technology that enables storage, indexing, retrieval, and reuse of knowledge  after it has been extracted from a person, made independent of person, and reused.

Objective and Structure of the Case Study

This case study aims at developing an understanding of various aspects and issues related to the implementation of knowledge-enabled customer relationship management (KCRM) by a telecommunications firm in a developing country. The telecommunications company, referred to as Global Telecom (GTCOM) from now on, seeks to move from an engineering-led organization toward a customer-centric strategy as the backdrop for implementing the KCRM. The KCRM initiative was designed to allow GTCOM to automate and streamline its business processes across sales and service channels. The KCRM strategy was targeted at achieving an integrated view of customers, maintaining long-term customer relationship, and enabling organizational transformation from prod- uct-centric to customer-centric.

The case study starts by providing a background to the motivation for moving toward a customer-centric organization, followed by setting the stage to the case, and exploring the details of the case. Then, the chapter describes the current challenges facing the organization, and ends with a discussion and conclusions.

Methodology

In order to gain an understanding of the organization as a whole and the KCRM initiative in particular, 11 in-depth face-to-face interviews, and one in-depth telephone interview were carried out to solicit the viewpoints of the concerned managers from different managerial levels and business functions. In addition, appropriate organiza- tional documents and reports were consulted.

The interviews were systemically analyzed, and the result of the interviews was tape-recorded voice descriptions of the main aspects and issues when implementing the KCRM initiative.

BACKGROUND

Drivers for Becoming Customer-Centric

The telecommunications sector in this developing country was in a monopolistic position with respect to virtually all telecommunications, data transmission, and Internet services for many years. As part of the government policy to liberalize different business sectors, an  autonomous  body  was  established  to  regulate  the  telecommunications sector. The Telecommunications  Regulatory Commission (TRC) by the end of 2002 issued expressions of interest for a second GSM license, and awarded a second license in 2004. The market was due to be fully open to competition in all telecommunications areas by July 2004.

Never had the external environment of GTCOM been so competitive, turbulent, and challenging with respect to attracting and keeping customers and controlling costs. The delicate market position of GTCOM, due to the liberalization of the telecommunications market, was aggravated by organizational dysfunction manifested by a strong hierarchi- cal structure, indigenous culture, and a product-centered business. The fear was that unless GTCOM undertakes substantial change, its competitors would move ahead and it would be left behind.

In an attempt to face the challenge, the main thrust of activities in the past months was to make GTCOM more customer friendly and efficient so that consumers will be less inclined to “jump out of the ship” and defect to new players in the market. As a result, GTCOM decided to adopt a knowledge-based customer-centric response strategy, that is, KCRM, in order to diffuse existing business problems and exploit future business opportunities.

The KCRM initiative targets the achievement of a more integrated approach toward serving customers  through  a multitude  of channels.  By  implementing  the  KCRM program, GTCOM sought to transform its customer-centric data into complete knowl- edge, and to apply that knowledge to the development of a longer-term relationship with customers. The complete understanding of existing customers enables GTCOM to meet current market challenges and represents a new potential market and source of gaining competitive advantage, retaining existing customers, repeating profitable sales, increas- ing revenue, and improving customer satisfaction.

Corporate  History

GTCOM came into being in 1981 as a national telecommunications shareholding company. GTCOM is now working toward meeting the demands of the new info- communications age — the convergence of communications, computing, entertainment, mobility, and information.

As one of the country’s largest organizations,  GTCOM makes a difference in people’s lives. To improve this, besides creating business and employing citizens, it is committed to addressing the impoverished and underdeveloped sections of the commu- nity, and allocates 2% of its profits every year to educational, cultural, environmental, charitable, and social causes.

Type of Business and Products/Services

GTCOM is an integrated communications solutions provider that offers a wide range of products  and services  in the data,  Internet,  mobile  telephony,  and fixed telephony market segments.

In the Internet service provision market, GTCOM has services that include one-stop shopping, integrated services digital network (ISDN), messaging switching system (MSS), budget Internet-access service, and asymmetrical digital subscriber line (ADSL). In telephony, though the broadest market is fixed lines, mobile services grow ten times faster.

Organizational  Structure

GTCOM is considered one of the largest companies in the region in terms of employees and revenue. GTCOM employs more than 2,000 employees with different skills such as engineering, ICT, business management, and support. The command structure of GTCOM is rather traditional, hierarchical, and “functional” in nature. In functional organizations such as GTCOM, work is conducted in departments rather than customer- centered business  processes  that cut across business  functions.  The organizational structure is composed of four hierarchical levels. The top level represents the board of directors and chief executives (CEs), the second level represents the chief executive officer (CEO), the third level represents the chief operating officer (COO) for Customer Services (CS) and the COO for Support Services (SS), as well as the general manager (GM) for Human Resources (HR), whereas at the fourth level — underneath the COO for CS and SS — comes a number of business units, each headed by GMs, senior managers, or managers. The CS units look after all types of front-office customer transactions and include a number of units, namely, major, business,  residential,  and new business development units. On the other hand, the SS units work toward supporting all customer units in offering back-office services to customer transactions and include units such as IT support, finance support, engineering support, and services support units.

Corporate  Culture

The ability, willingness, and readiness of people to create, share, and transfer knowledge heavily depend on the corporate culture and business integration. Although many attempts have been made at GTCOM to encourage knowledge sharing, it seems that there is still a lack of cultural preparedness for intradepartmental knowledge sharing that was aggravated by lack of business integration across different silos, which had its profound adverse effect on interdepartmental knowledge sharing.

The knowledge-sharing culture at GTCOM has been hindered by additional factors; among these are position/power differences, lack of self-confidence, fear of loss of power or position, and/or misuse or “no use” of knowledge-sharing collaborative technologies. An example of the misuse of knowledge-sharing technologies is when an employee finds hundreds of e-mails  waiting  for him/her  in his/her  “in-box”  simply because  other employees kept on forwarding received e-mails to him/her whether these e-mails concern him/her or not. A customary practice of the no use of knowledge-sharing collaborative systems may be evidenced by an employee who asks his/her boss or another colleague on how to invoke a particular computer procedure instead of searching the intranet for retrieving such a command.

SETTING THE STAGE

Description  of KM Context

GTCOM has traditionally been product focused and overwhelmed with supply-side issues rather than customer-side needs. Until GTCOM made a serious effort to under- stand its customers better, its initiatives designed to improve efficiency and effective- ness in the customer interface had little chance of success.

The description of KM context provides an exploration of what customer knowl- edge is, assesses who hold and should hold that knowledge, outlines KM problems, identifies KM directions needed, sketches the overall KM plan, and assesses the way in which that plan relates to KM problems.

What is CK?

Customer knowledge (CK) refers to understanding customers’ needs, wants, and aims when a business is aligning its processes, products, and services to create real customer relationship management (CRM) initiative. Sometimes CK can be confused with CRM. Although there could be some overlap, CK works at both micro and macro levels and includes a wider variety of less structured information that will help build insight into customer relationships. CK should include information about individuals (micro) that helps explain who those individuals are, what they do, and what they are looking for, and should also enable broader analysis of customer base as a whole (macro). Similarly, CK may include both quantitative insights (i.e., numbers of orders placed and value of business), as well as qualitative insights (tacit or unstructured knowledge that resides in people’s heads).

The aim of building up a strong body of CK is to enable GTCOM to build and manage customer relationships. CRM is an interactive process that achieves optimal balance  between corporate investments and the satisfaction of customer needs to generate the maximum profit. CRM emerged as an amalgamation of different management and infor- mation system (IS) approaches, and entails the following processes (Gebert, Geib, Kolbe, & Brenner, 2003):

•          Measuring inputs across all functions, including marketing, sales, and service costs as well as outputs in terms of customer revenue, profit, and value;

•          Acquiring and constantly updating knowledge on customer needs, motivation, and behavior over the lifetime of the relationship;

•          Applying  CK to constant  improvement  of performance  through  a process  of learning from successes and failures;

•          Integrating marketing, sales, and service activities to achieve a common goal;

•          Continuously  contrasting  the  balance  between  marketing,  sales,  and  service inputs with changing customer needs in order to maximize profit.

CK that flows in CRM processes can be classified into three types:

1.        Knowledge about customers: accumulated knowledge to understand customers’ motivations and to address them in a personalized way. This includes customer histories, connections, requirements, expectations, and purchasing pattern (Dav- enport et al., 2001).

2.        Knowledge for customers: required to satisfy information needs of customers.

Examples include knowledge on products, markets, and supplies (Garcia-Murillo & Annabi, 2002).

3.        Knowledge from customers: customers’ knowledge of products and services they use as well  as about  how  they  perceive  the  offerings  they  purchased.  Such knowledge is used in order to sustain continuous  improvement,  for example, service improvement or new product development (Garcia-Murillo & Annabi,2001).

Knowledge  about  customers  is gathered  through  interactions  with  customers through processing of customer orders as well as through different customer interaction channels such as phone, e-mail, interactive voice recognition (IVR), fax, mail, e-com- merce, and front-office stores (Figure 1). Operations knowledge about customers, for example, customers’ personal information and purchasing history are held in computer- ized operational data stores (ODS), that is, billing and provisioning data stores, and accessed by staff of these units. For example, each time a customer makes contact with the company, the customer’s needs, as well as the actions taken to satisfy these needs, represent information that may be captured and processed to benefit future customer interactions.

The knowledge about customers should be used to determine what to offer, when to offer, and how much to charge. In the long term, the company has to design new products, offer new services, compete in new markets, but even in the short term, the top salesperson could get sick or be headhunted. What companies currently know about their customers may not be sufficient in order to build and sustain stronger relationship with customers. Companies may need to put in processes and systems to gather more information and data about who their customers are, what they do, and how they think in terms of future purchasing decisions. Therefore, analytical, or deduced, knowledge about customers such as prediction of customers’ expectations and future-purchasing patterns, using advanced computer models and business intelligence (BI) systems is becoming a prerequisite to establishment of strong customer relationship.

Knowledge  for customer  sources  relate  to personal  knowledge  possessed  by employees themselves or related to employees’ work such as corporate manuals, guidelines, memos, and meetings. Knowledge that resides in people’s heads can be extracted through person-to-person  contacts or through the usage of computer-sup- ported collaborative work (CSCW) technologies, that is, intranets and Lotus Notes, or through e-mails.

Knowledge from customers is another important knowledge for GTCOM that is collected through market surveys.

Therefore, the focus of this case study will be on the most vital form of business knowledge, namely, knowledge about customers and will be referred to as KAC from now on.

Who Hold and Should Hold CK?

Comprehensive CK is created through acquisition and processing of fragmented information found in files and databases specific to the particular application which was designed to process whatever transactions were being handled by the application, for example, billing, sales, accounting, and so forth. Currently, each of GTCOM’s customer contact/delivery channels (e.g., phone, e-mail, fax, store) as well as front-office depart- ments (marketing, sales, and customer services) was operating as a silo with its own island of automation; information from each customer contact/delivery channel was owned as a separate  entity  by that unit.  However,  with each unit having  its own information, leveraging information across the myriad of customer contact channels was not carried out nor was it possible to provide a consistent customer service experience. For example, a customer may telephone a call center to inquire about a transaction conducted through the Web site only to be told to call the Internet department.

GTCOM does have knowledge about its customers, but frequently this knowledge is in a fragmented form, difficult to share or analyze, sometimes incomplete, and often unused for business decisions. Advances in ICT are increasingly providing GTCOM with opportunities to support customer service operations, and integrate KAC through several contact/delivery channels.

Direct users of KAC are power users at customer-facing departments, namely, sales, marketing, and customer services. Managers of these departments currently hold KAC, but that knowledge doesn’t provide analytical 360-degree view of customers. In addition to power users, there are other users with authorized access to GTCOM’s KAC. These users are as follows:

•          Basic users: operational staff at the clerical level

•          Administrative users: IT people

•          Executive Users: senior managers, GMs, and CEs

The organizational structure of GTCOM does not reflect the needs for effective utilization of knowledge resources. No special unit was found in charge of promoting KM activities and programs where knowledge ideas can be computerized and shared across different departments. In addition, no person was found in charge of the generation, storage, sharing, distribution, and usage of KAC, that is, there is no Chief Knowledge Officer (CKO).

KM Problems

The problem faced by GTCOM in creating a customer-centric business was that its organizational structure was centered on multiple isolated silos or functions, which led to fragmentation of KAC. Multiple silos represent multiple obstacles that undermine full exploitation of enterprise-wide business knowledge. A silo or stovepipe structure is a function-based form of organization, supported with islands of data, which does not promote communication across departments or units. Information on customer demo- graphics and usage behavior, for instance, were scattered among numerous databases, which forced users to query multiple systems when an answer to a simple query was required or when making a simple analysis or decision related to customers.

KAC-related challenges that face GTCOM are as follows:

•          Current ICT systems are unable to create complex KAC required by the business decision makers for facing fierce competition;

•          Increasing demand for multidimensional customer view;

•          Diverse data sources and platforms, that is, Windows, LINUX. UNIX, impeding customer data management.

Directions Needed

There is a need for GTCOM to fill a gap between what it thinks customers want and will put up with, compared to what customers really want and will go to its competitors for. Management of KAC requires effective capture of customer information, conversion of information into useful relationships, and efficient dissemination of knowledge to the places within the organization that need it most for decision making. Management of KAC requires the usage of processes and tools that build and distribute that knowledge.

This requires implementation of an enterprise-wide solution that relies on a single comprehensive data repository, namely, Electronic Data Warehouse (EDW), utilized by multichannel customer service contact/delivery points in order to achieve true enterprise data integration. The EDW is a comprehensive resolution of customer service issues over any and all channels, and a single customer view across the entire enterprise containing all information about the customer, their transactions, and the data they are likely to require during those transactions.

Successful management of a single customer view requires formulation of compre- hensive KCRM strategy that translates GTCOM’s mission and vision into a long-term customer-centric course of action. The objective of the desired KCRM initiative is to capture and organize comprehensive KAC, allow it to be shared and discussed, and to build customer relationships now and over the longer term. A comprehensive KCRM may entail the following components:

•          Identification of business/units requirements

•          Readiness assessment (manpower, technology, finance, etc.)

•          ICT infrastructure upgrade

•          Implementation of knowledge-based technology solution

•          Organizational transformation

•          Cultural change

•          Measurement and evaluation of performance metrics

•          Change management

Overall KM Plan

Although GTCOM’s overall KM plan is not found at a formal, corporate-wide level, several KM activities  were  conducted  but  rarely  categorized  as KM.  However,  a customer-centric KM plan has been formulated, clearly articulated, and formally ad- dressed through many formal KM undertakings. One manager clearly explained the fact that the overall KM initiatives at GTCOM were predominantly informal, fragmented, and not part of a corporate knowledge plan or strategy. In his words:

I think we are at the stage where we need to formalize it [KM]. It [KM] is being addressed in general and informally on the basis of ideas we are linking to corporate objectives. So there is nothing specifically to say; like in the past we came with TQM [time quality management], we wanted to introduce this TQM concept into the organization or process reengineering and staff like that, they would be addressed within the departments’ sections. We will say these are the targets: better customer satisfaction, revenue growth, efficiency, and corporate image.… So we gave the owners and the concerned people the chance to come up with the ideas; we do not go to them with the exact solution because it is them who know what is happening in their department sections, and our role is basically to explain to them to think out of the box.

GTCOM adopted a mixture of codification and personalization approaches in its KM activities, but the codification strategy prevailed over the personalization strategy. The following is a description of KM activities undertaken by GTCOM, grouped according to the three pillars of knowledge: people, process, and technology.

People

Job rotation is almost the only notable human-based initiative formally undertaken by GTCOM. The company has placed a high value on applying job rotation principles for several years now. Not only did it transfer people within the same department but transferred them into other departments or into joint ventures outside the country. One manager maintained that “Engineers who are working in HR [Human Resources] and HR people who are working at marketing, and we have finance people who are serving in the front office. This is the way that we have been adopting perhaps not to the degree that we would like because not everybody  is prepared  to the challenge  but 2% of our employees, that is our KPI [key performance indicator], will rotate annually. And we have managed to achieve not exactly 2%, but something close to that, and we are happy with it, but we would like that to be expanded.”

Processes

Sporadic initiatives regarding the sharing of best practices and lessons learned are conducted at GTCOM. For example, the IT department holds an annual review of projects whereby lessons learned and selected best practices are reviewed and distributed to participants. The concept of best practice is also applied to customer service by scripting and compiling frequently asked questions, which are used at the call center as the best practice or standard proven solution for problems presented by customers.

Voice of the customer (VOC) is a KM initiative that aimed at assessing customer satisfaction using a market survey. There are many variables that go into it; it is huge, and is carried out annually. It explores customers’ feelings and level of satisfaction toward a great number of things, including wait time; accuracy of bills; the level of the knowledge and the courtesy and the attitude of the technicians, account managers, help

desk, SMS news, call center staff; prices; communication; and branding. Once the VOC knowledge is captured,  it will be properly  disseminated  and reported  to top-level executives for management actions. GTCOM has got a project champion who is basically a person who looks after the survey results, ensures there is an action plan, and ensures that the action plan is implemented.

ICT

GTCOM undertook several ICT-based KM activities. It introduced a new module called the Competency Dictionary or Performance Management Review module as part of the human resource management system (HRMS). The module enables employees to use their terminals to assess their competencies from their own point of view; then their line managers  assess them again. This knowledge  map allows identifying  the gap between the required knowledge and the existing knowledge. The gap is used as a knowledge repository to take HRM decisions related to promotion, transfer, rotation, training, and recruitment. Finally an employee self-service allows access to completed training in the last two years, application to loans, and other services.

Another initiative was project portals, where every project at the company opens a session in the intranet and links the financial area, the project manager and all members of the project. It allows sharing documents and exchanging e-mails. This initiative aimed at creating a collaborative environment for sharing knowledge and work in progress. Similarly, every department has a home page in the intranet to join members of the department and to spread  information  such as procedures,  templates,  reports,  and folders.

Computer Supported Collaborative Work (CSCW) solutions such as intranets, Lotus Notes, and document work flow systems were also utilized by GTCOM. The intranet supported knowledge dissemination in various ways. Employees heavily use e- mail and Lotus Notes for e-mail, calendar, contacts, and memos to organize meetings, events, and deadlines. The Integrated Document Management System (IDMS) covers document management and work flow and allows moving documents from one place to another when there is a need for approval, for instance. It is still used only in purchasing and in human resource management for performance appraisal review, but it is planned for usage in other areas in the company.

The KCRM is a major technology-based  KM program formally  conducted  at GTCOM. It aims at understanding the “customers’ lifetime value,” and includes three projects: the EDW, operational CRM, and analytical CRM projects. Details of the KCRM strategy will be provided in the Case Description section.

Connection Between Overall KM Plan and CK Problems

Only two of the many KM activities, namely, the VOC and KCRM, formally addressed KM problems. However, knowledge from customers obtained through the VOC is not as valuable, comprehensive, and timely as KAC obtained from the KCRM. Many advanced analytical features such as customer profiling, segmentation, one-to- one selling, cross-selling, up-selling, campaign management, individual pricing, risk analysis, sales prediction, loyalty analysis, and easy customization. In the words of one manager, “It was not possible to bring about an integrated, one single view of the customer by solely focusing on market research activities. The worry was certainly that competitors will come and we certainly have to have competitive edge over competitors, a competitive edge over the customers is our database. Nobody will know our customers’ behaviors, who they are, where they live, when they make the call, but us.”

Additionally, when market researchers go and interview people to generate knowl- edge from customers as part of the VOC initiative, the results of interviews cannot just be taken as the right solutions. The KCRM intends to make a contribution to that, but again the challenge is to analyze the CRM reports, and to extract knowledge from customers the way users want when there are so many variables to consider. For example, when studying the potential demand for a new product, the need is to understand and make the best guess for a market demand, and if the tool is not used properly, then wrong results might come about.

CASE DESCRIPTION

The desired goal of the customer-centric KM plan of GTCOM was the acquisition of cross-functional customer-centric knowledge in order to help it sustain competitive advantage in a highly competitive and dynamic business environment. The focus of this part of the case study will be on providing details of the KCRM components as well as evaluation of the progress  made leading  to an identification  of new or remaining challenges.

KCRM Strategy Fit within Customer-Centric  KM Plan

In 1998/1999, GTCOM foresaw that knowledge was key to being able to establish long-term relationships with customers and improving profitability in the impending competitive environment. In 2001, it decided to initiate the development of a threefold KCRM strategy composed of the EDW, operational CRM, and analytical CRM projects to be able to manage its customer-centric knowledge resources.

The  development  process  of the  customer-centric  KM plan  involved  several decisions and activities, which are as follows:

1.        Transformation toward a customer-centric organization

2.        Organizational restructuring to align its structure with the new business strategy

3.        Streamlining the value chain of most processes

4.        Formulating an action program or business case which involved the following activities:

a.       Correction and cleansing of customer data (e.g., customer names, addresses, ID numbers, etc.)

b.       Enhancement of customer contact channels

c.       Establishment of KPIs to include factors such as return on investment (ROI), head count reduction, speed of customer service, and response rate to customer calls

Although GTCOM has no solid overall KM plan, a customer-centric  KM plan derived from the vision of improving customer relations has been articulated. Real customer relationships are formed through interaction and by anticipating user needs, not by providing custom products. Therefore, KCRM has been adopted as an enabling strategy for the achievement of that vision. The KCRM strategy will provide GTCOM with a mechanism to further understand customer behavior and anticipate customer

demand for its telecom services across all sales and service channels, and respond quickly to changing customer needs.

The vastness and complexity of customer-centric knowledge required in today’s service operations demand advanced technology capabilities. There is no doubt that today’s ICT power has opened the door to a new breed of codified knowledge that can help in addressing customer-centric knowledge problems, that is, EDW and CRM, and it is obvious that ICT has dominated GTCOM’s customer-centric KM plan.

KCRM strategy aims at providing GTCOM with an integrated environment to track its sales opportunities, build accurate sales forecasts, provide an outstanding multichan- nel customer service, and deliver speedy fulfillment of customer orders. “Service is proving to be a key differentiator in the region’s increasingly competitive telecoms sector, and GTCOM’s CRM initiative is targeted at achieving one integrated approach toward serving our customers through a multitude of channels,” commented one IT manager. The CRM program manager noted, “CRM is expected to give [GTCOM] a single, updated view of our client base, enabling us to create more targeted sales offerings while providing enhanced service capabilities.”

However, in light of fierce competition facing GTCOM, there is a need to do much more and much faster to increase its customer-centric knowledge base, invest in training their staff, and take advantage of the new ICT for acquiring and disseminating knowledge throughout the company. GTCOM also needs to carefully analyze the potential costs and benefits of introducing ICT-based customer-centric knowledge programs, and adapt these ICT solutions to its KM and corporate context. Also, one needs to remember that KCRM is not only a technology solution to customer-centric  knowledge problems. Rather, it is a long-term  integrated  strategy  that combines  processes,  people,  and structural changes.

KCRM Architecture

The KCRM strategy was enabled by three ICT-based solutions: operational CRM, EDW, and analytical CRM (Figure 1). The operational KCRM is composed of three layers. The first layer is customer contact/interaction channels or “touch points,” that is, phone, e-mail, integrated voice recognition (IVR), fax, mail, e-commerce, and person walk-in retail stores. The second layer represents customer-facing departments, that is, marketing, sales, and customer services departments. The third layer is composed of several front- office operational systems:

•          CRM: Fixed telephone line service provisioning system (replaced the old CSS

provisioning side)

•          FODS1: Fixed telephone line billing (replaced the CSS billing side)

•          FODS2: Internet protocol billing

•          FODS3: Prepaid mobile telephone line service provisioning

•          FODS4: Postpaid mobile telephone line provisioning and billing

The second part of the KCRM is the EDW. Incoming transactional data from all front-office systems as well as many back-office operational systems feed into the EDW. The EDW operates as follows:

1.        Extracts data from operational databases, namely, sales, service, and marketing systems.

2.        Transforms the data into a form acceptable for the EDW.

3.        Cleans the data to remove errors, inconsistencies, and redundancies.

4.        Loads the data into the EDW.

In addition, there is an enterprise application integration (EAI) layer that was decided to be there  to address  the problem  of diverse  customer  data sources  and platforms. It integrates the front-office CRM provisioning system with the three back- office billing systems, namely, BODS1, BODS2, and BODS3, which then feed into the EDW. While all front-office ODS applications feed data into the EDW, only three out of five major back-office ODS applications feed into the EDW. Main back-office application systems are as follows:

•          BODS1: Geographic information system (GIS) billing system (integrated with the EDW)

•          BODS2: Mediated billing for fixed telephone lines (integrated with the EDW)

•          BODS3: Back-office billing gateway for mobile telephone lines (integrated with the EDW)

•          BODS4: Enterprise resource planning system (ERP)

•          BODS5: Human resource management system (HRMS)

The third major part of the KCRM architecture is the analytical KCRM, which is composed of data marts created from the EDW, followed by analytical applications using BI system, and finally development of an integrated customer view. Data mart is customized or summarized  data derived from the data warehouse  and tailored to support the analytic requirements of a business unit/function.

EDW  Project

The EDW is a subject-oriented, time-variant, non-volatile (does not change once loaded into the EDW) collection of data in support of management decision processes (Inmon, 1996). The EDW represents  a “snapshot”  or a single consistent  state that integrates heterogeneous information sources (databases), is physically separated from operational systems, and is usually accessed by a limited number of users as it is not an operational system. EDW holds aggregated, tiny, and historical data for management separate from the databases used for online transaction processing (OLTP). The EDW is a repository of data coming from operational legacy systems, namely, customer care, billing system (including the three customer profiles: IT, GSM, and fixed line billing), finance system, account receivables, and others. The EDW was thought to be a strategic system and major enabler for GTCOM’s continued success in the fierce competitive environment.

The EDW has become an important strategy in organizations to enable online analytic processing. Its development is a consequence of the observation that opera- tional-level OLTP and decision support applications (online analytic processing or OLAP) cannot coexist efficiently in the same database environment, mostly due to their very different transaction characteristics.

Data warehousing is a relatively new field (Gray & Watson, 1998) that is informa- tional and decision-support-oriented rather than process oriented (Babcock, 1995). The strategic use of information enabled by the EDW helps to solve or reduce many of the negative effects of the challenges facing organizations, reduce business complexity, discover ways to leverage information for new sources of competitive advantage, realize business opportunities,  and enable quick response  under conditions  of uncertainty (Love, 1996; Park, 1997).

GTCOM realized that it could not continue to run business the same traditional way by using the same old ICT and the same old focus of a product-led business in a highly competitive and turbulent business environment. The competitive nature of today’s markets is driving the need for companies to identify and retain their profitable customers as effectively as possible. GTCOM perceived the key to the achievement of this objective was the usage of rich customer data, which could be sitting unused in a variety of databases.

EDW Planning and Initiation Stage

In 1998/1999, GTCOM had some foresight that knowledge was crucial to establish long-term relationships with customers. Although the company’s leadership commit- ment played a key role in the implementation of the initiative, the main driver for EDW initiative was the fierce competition due to deregulation of the local telecommunications market that was announced in 2001 but took effect in 2003.

GTCOM has its own approach for approving new business initiatives and convert- ing ideas into concrete projects. From a business management perspective, new initia- tives at GTCOM pass through three major stages. Prior to the commitment of resources and initiation of a project, GTCOM makes sure that it adds value; managers present a business case to a senior management team called the Capital Review Board to agree on the capital expenditures, timing, and expected outcomes. The business case covers all the  business requirements (BRs), prioritization of BRs, and how they fit within the corporate objectives. The requirements revolved around this open question: “What are the most important pieces of information that if you have today, would help you make better or more informed decisions?”, for example, customers’ information which includes type of customers, age, location, nationalities, gender, education and professions, and geographic distribution, and products’ information which represent historical data for all services and products.

Business questions (BQs) were then established. The BQs are documents that help in modifying  the standard  logical  data model (LDM)  to meet GTCOM’s  business requirements. One BQ example is, “Which customers generate most of the total traffic?” Then, BQs are carefully examined and prioritized to determine what information is needed for each BQ. Also “owners” of BQs are assigned, so that any further discussion of meaning can be conducted on a one-to-one basis rather than a full-house meeting.

Once the EDW project was initiated, the second phase took place wherein the Project Review/Management Committee evaluated achievements compared to the plans approved in the first phase. When a project was completed, it was checked in terms of its deliverables, cost, and time. Since many of the KM initiatives were supported by ICT, they also followed a specific development and implementation process based on the methodology used by the IT department.

GTCOM then tendered the EDW system and selected a vendor, who formulated strategies and presented experiences and recommendations of processes and structures to best exploit knowledge. In the first quarter of 2001, the initial stages of the project began. To understand  business  processes  and objectives,  the vendor  of the EDW redefined processes, identified key business deliverables,  and prioritized them into about 100 business  cases,  for example,  customers,  products,  revenue,  traffic,  and sensitivity analysis. The vendor played a leading role in being the main source of knowledge for GTCOM and in partnering with business units to define their business requirements. The vendor formulated strategies, presented them to management, and came up with experiences and recommendations of how to best exploit knowledge in terms of processes and structure. At the same time, GTCOM formed a committee in order to align the system to business objectives in terms of who should be getting what access, what sort of information should be going on it, and how to structure the project phases.

EDW Design and Customization Stage

The EDW project is a very multifunctional and multitasking endeavor that tran- scends functional boundaries, for example, technology, product, marketing, market research, and finance. In 2000, GTCOM formed different committees to oversee the first phase of the project. These were the Business Intelligence Steering Committee (BISC) representing GMs (high-level senior managers) and Project Management Committee (PMC) consisting of the IT project manager and key business representatives  from marketing, sales, back office, and customer care. There were also subcommittees looking into technical details of the system such as format of reports, quality of data, and others.

Soon, GTCOM finalized the design and started customizing the EDW and transfer- ring information  from the source systems into the EDW system. The end of 2002 witnessed the completion of the first stage called Increased Business Value. During 2003, the second phase (Expansion and Growth) began.

The high-level design of the EDW was composed of the following:

•          The data warehouse itself, which contains the data and associated software;

•          Data acquisition software (back-end), which extracts data from legacy systems and external sources, consolidates and summarizes the data, and loads it into the data warehouse (operational side);

•          The client (front-end) software, which allows users of business intelligence, tools such as decision support systems (DSS), executive information systems (EIS), data mining, and customer relationship management (CRM) to access and analyze data in the warehouse (analytical side).

The design and customization process involved the following decisions/activities:

•          Customizing the standard;

•          LDM of the vendor to meet GTCOM’s BRs and rules;

•          Designing  a high-level  data  sourcing  and architecture  design  to support  the established BRs;

•          Designing data access architecture and user access points;

•          Designing management and maintenance structure, which includes system, man- agement, user administration, security management, as well as backup, archive, and recovery (BAR).

EDW Testing and Support Stage

The testing process consisted of activities such as defining the test environment, defining test cases and test data, assembling the components to be tested, executing the test, analyzing results, correcting identified problems, and revising/updating the testing process throughout the life of the project.

The support function involves a number of processes and tools that will be used to give the users the access priority adequate for them according to the service level agreement (SLA). This is done via a number of processes and tools.

EDW Implementation  and Operation Stage

This harmonizes well with the concept of EDW, which is an interdisciplinary endeavor that needs to transcend functional boundaries, that is, technology, product,

marketing, market research, and finance, and it capitalizes on shared knowledge and expertise from different business units.

EDW Implementation Team

The EDW project actively involved senior management, IT managers, business managers, and the vendor during the development process. Although knowledge users are business people from various functions, an IT manager at the beginning championed the project. Soon they understood that it had to be business driven and one of the general managers was appointed as the sponsor. The technical mind-set of IT people may not fit the business nature of the EDW project; EDW was part of a business strategy, not just a suite of software products. The following roles were performed by the EDW implementation team:

•          Business representative: this role provides the leadership necessary for project success, facilitates the decision-making process for current and emerging business needs and requirements, as well as facilitating users’ training and project budget- ing decisions. The role provides link between the business side and the IT side. While he/she doesn’t need to understand the details of system installation and configuration, business representative must be aware of CRM configuration and maintenance requirements. The GM for the Residential Customer Business unit handled this task.

•          Executive sponsor/owner: this person is a major business player who plays both the role of sponsor and owner, provides the link between the project manager and upper management, guides funding and financing decisions, as well as decisions about when and where to deploy the CRM system. This person must understand the details of the installation, configuration, and schedule. The EDW sponsor was the manager for the Customer Marketing unit.

•          Project manager: the project manager directs the work, makes things happen, and works with the vendor. This person must understand the details of the installation and configuration, and the schedule. The EDW project manager played this role.

•          Project team leader: the role of this person is same as that of the business representative but from the IT point of view. This person  is responsible  for coordinating the IT side of the project with business needs and requirements. A database administrator handled this task.

EDW Content

The EDW is a data-based rather than a process-based system. Therefore, it does support data capturing and processing but not business processes. The data captured by the EDW relate to the following entities:

•          Customers: relate to residential or business customers (age groups, living areas, etc.).

•          Products: represent the number of mobile or fixed telephone lines, Internet lines, and so forth.

•          Traffic: related to the usage behavior of customers (in terms of volume, duration, and time of calls).

•          Revenue: referred to the amount of money generated per category of customers, products, age groups, or living areas.

•          Sensitivity analysis: derived information that results from advanced analysis of the previous components.

Many reports can be generated  from the EDW. Products/services  reports, for instance, provide the following information:

•          Revenue breakdown  as one-time/recurring  usage for each product family per quarter;

•          List of customers based on the number of offers a customer has;

•          List of customers who do have a selected product/s but has other selected product/s;

•          List  of  customers  and  the  products  (leased  equipments)  and  the  age  of  the equipment;

•          Sold products in the last 12 months, in addition to cross-selling reports;

•          Top/bottom N products based on the number of customers subscribed to those products;

•          Customer-level profiling based on bills issued, payments, overdue amount, and number of bills with amount overdue;

•          Segmentation  of customers  based  on the average  current  charge  per invoice ranges;

•          Top N rank customers based on revenue, usage/recurring/one-time  revenue by party type;

•          Revenue growth over a period of 12 months with respect to customer category.

CRM  Project

The CRM project was composed of two parts: operational and analytical. The operational CRM project was delivered in May 2004. The goal of the CRM project was to enable GTCOM to focus on its “customers’ lifetime value.” Typically, operational CRM has the potential to respond to customers’ priorities in terms of their value and being able to answer customers promptly and efficiently and would feed at the inbound and outbound directions into the EDW (bidirectional). To do so, the agent dealing with them would have online information about their identity, spending, products and services, and needs. And on the other hand, anything customers ask online would be captured into the marketing side of the CRM straight away by the front-end units such as call center and customer care, and will be used for customer segmentation and profiling by the analytical CRM.

The analytical side of the CRM is scheduled to start the planning phase in September 2004, and is due to be delivered in 2005. CRM feeds the transactional processing data into the EDW and then conducts analytical processing on these data. The analytical CRM typically includes OLAP, data mining (DM), and business intelli- gence (BI). However, only the BI option has been part of the analytical CRM at GTCOM. Analytical CRM provides power users with sales cubic view of their customers through slicing and dicing, back-end marketing management activities, such as campaign man- agement and sales management; and allows users to feed on certain business rules for customer groups into the operational side, as well as predict future trends and behaviors and discover previously unknown patterns. It also facilitates marketing campaigns and surveys. The rest of discussion will be confined to the operational side of CRM.

CRM Implementation

The operational CRM development process passed through the following major decisions and/or activities:

•          Approval of the business case and project budget after analyzing its benefits, costs, and potential risks;

•          Selection of a vendor and ICT application. The vendor was itself the consulting company that managed the implementation of the CRM initiative, drawing on the software company’s extensive expertise in the business needs of the telecoms sector;

•          Integration of the old technology (CSS provisioning and billing system) with the

CRM project in the transitional phase;

•          Identification of project implementation team members who represented major business units as well as the IT unit;

•          Establishment of best work flow practices for provisioning of services;

•          Mapping of customer data flow in line with the new process flow;

•          Deciding on the right time to discard the old customer service system (CSS), a system for telephone line provisioning and billing, and the right time to go live with the new operational CRM system, as well as deciding on the criteria of acceptance of the system from the vendor.

CRM Implementation Team

The implementation team of the operational CRM project performed the following roles:

•          Business representative: this role provides the leadership necessary for project success, facilitates the decision-making process for current and emerging business needs and requirements, as well as facilitating users’ training and project budget- ing decisions. This role provides link between the business side and the IT side. While he/she does not need to understand the details of system installation and configuration, the business representative must be aware of CRM configuration and maintenance requirements. The GM for Customer Services handled this role.

•          Executive sponsor/owner: this person is a major business player who plays both roles of sponsor and owner, provides the link between the project manager and upper management, guides funding and financing decisions, as well as decisions about when and where to deploy the CRM system. This person must understand the details  of the CRM’s  installation,  configuration,  and the implementation schedule. The business representative was a senior manager for IS Development and Analysis.

•          Project manager: the project manager is the person who directs the work and makes things happen. This person must understand the details of the installation and configuration, the implementation schedule, work with other team members and understand their contributions,  and work with the outside vendor. The CRM project manager handled this role.

•          System owners: set up and configure hardware, and install operating systems and supporting software. Different IS specialists in charge of ODSs handled this role.

CRM  Processes

Unlike the EDW, the operational CRM system is a process-based  system that automates customer-facing business processes, and is accessed by a large number of users who operate or manage the operational systems as well as their ODSs. It automates the following groups of processes:

•          Sales processes

•          Service processes (both fault and complaint processes)

•          Marketing  processes

•          Call center/contact channels processes

CRM Content

In addition to automating business processes, the operational CRM system cap- tures the following types of transactional data:

•          Customer demographic data

•          Service fulfillment information

•          Sales and purchase data and their corresponding service order number, status, etc.

•          Service and support records

•          Profitability of products and customers

•          Other types of customer-centric information

Organizational  Transformation

Alongside the KCRM program, GTCOM undertook an organizational transforma- tion initiative in its quest for achievement of customer-centric business. In 2000, GTCOM felt that it was time to reengineer business processes by cutting out the non-value- adding ones, and integrating ISs together. There were many fragmented or stand-alone systems that were doing many important things but were not “talking” to each other.

Starting from 2001, GTCOM foresaw the need for a transformation of the organiza- tion from engineering-led to customer-led. The end of 2002 witnessed the completion of the first stage called Increased Business Value. In 2003, several work teams looked at the various functions and processes for possible improvement and reengineering. Phase 3 of the organizational transformation program, known as Get Ready, was a continuation of the first and second phases that was almost paralleled with the EDW project. Phase

3 mainly sought to help GTCOM face the business competition by transforming GTCOM

from product-led to customer-led business.

An outside consultant  was called in to lead the organizational  transformation process. However, the consultant faced some resistance from employees, especially when the issue of restructuring was tackled. Restructuring became part of the organiza- tional politics and inertia emerged as a result.

One of the specific restructuring initiatives launched by GTCOM under the newly emerged customer-led form was a “Knowledge Exchange” to increase the cross-func- tional cooperation and exchange of knowledge between sales (customer-facing or front- end) and product development (marketing-oriented or back-end) divisions. These two divisions were used not to maintain cooperation and exchange of knowledge with each other as they had a culture of “we got our own things to do; you got your own things to do.”

As a direct response to the liberalization program of telecommunications services, GTCOM has been going through a transitional rebalancing program that started in 2003 and is planned to continue until the end of 2005. At the beginning of 2003, the sales and product divisions were merged, and as a result of the combined knowledge of these two units, GTCOM has launched its new Mobile Price Plan on June 2003. This whole undertaking would not have been possible in the past with all of the silos or stovepipes in place.

Following the implementation of required organizational adjustments in the transi- tional period, GTCOM will be operating in a fully competitive environment by the end of

2005. Table 1 summarizes the major prospective changes that are due to take place following the transformation of GTCOM from a monopolistic to a fully-competitive business.

Results

Financial Performance

On the financial performance side, GTCOM has done extremely well so far in its ability to meet the turbulent and competitive environment. The main favorable result witnessed following   the implementation   of the KCRM strategy was that it offered GTCOM good financial performance results during the first quarter of 2004. Since GTCOM transformed its business and implemented KCRM, its net profits climbed to about 25.2% against the same period of last year. This increase is attributed to a year- on-year rise in gross revenues of 5%, and a reduction in costs largely due to nonrecurring exceptional items related to restructuring, which were successfully implemented by GTCOM in 2003.

Operational Performance

Unlike its good financial results, GTCOM’s performance was not encouraging at the level of operational excellence (i.e., service time, lead time, quality of service, productiv- ity) and satisfaction/loyalty of stakeholders (customers, employees, etc.). It faced and/ or is still facing the following problems:

•          System’s inefficiency and customers’ expectations: the operational CRM could not capture basic customer data; people at network department, for example, could not trace the work flow of sales order processes, which in turn, adversely affected the ability to meet customer expectations. This inefficiency would result in longer order fulfillment or service completion time, low productivity, customer dissatis- faction, and possible defect of customers to competitors.

•          Work flow problems: the logical work flow of sales order processes across business units  is  as  follows:  Sales,  Network,  Programming,  Private  Branch Exchange (PBX) between users and network, Installation, and Accounts, respec- tively. Service delivery time now is on average one to two weeks, but was less than one week under the old CSS provisioning and billing system.

•          Testing/migration problems: during the migration/testing period which lasted for couple of days (roughly between seven to ten days), many data did not go through

the operational CRM, as their data fields were not validated by the system. The nonvalidated data had to be rekeyed manually into the system. The computer system was of no use for the whole transitional migration/testing period, so all costumer operations were processed manually.

•          Vendor-related problems: although it is a world-class vendor with extensive experience in ICT solutions, the vendor underestimated project complexity and responsibilities. This resulted in missing the delivery target three times, and then followed by a decision by many employees to quit their jobs.

•          Ineffective change management: in addition to the projects implementations team, there was a dedicated change manager; however, this role was ineffective. The concept of change management was new to GTCOM, and it could not afford to continue funding the post, so the post was cancelled.

•          Management problems: GTCOM changed the CSS system into CRM in a critical period of time when the market was liberalized. It was very dangerous to phase out the CSS system when nothing was clear on the negative consequences on operational excellence and satisfaction of stakeholders. It had also been decided to proceed with implementation although it was known that the system was not effective and incapable of meeting the objectives of the CRM strategy and its KPIs.

CHALLENGES

Although GTCOM had made some positive moves toward changing the organiza- tion from being engineering-led to customer-led, especially in light of changes in its business environment, it still faces a number challenges with respect to the effective management of its knowledge for continued business success. The challenges are as follows:

Overall KM Strategy

There was a need to formulate organization-wide formal KM strategy and programs for learning best practices and for the development of new projects. The KCRM initiative at GTCOM seemed to be created and used on the basis of “technology push,” introduced through vendors, rather than “market pull,” as a mere response to real business need. The KCRM technology components were driving, instead of enabling, the KCRM strategy and its KPIs. One manager admitted that “suppliers try to push their new products and then there is stage of filtering, studying, and analyzing where there are subjectivities and different opinions.” The development of an organization-wide strategy for the genera- tion, sharing, distribution, and utilization of knowledge is becoming imperative for GTCOM’s continued success in today’s competitive market.

Although it can be said that GTCOM did a good job in putting up the required ICT infrastructure in place, however, it did not develop a robust business solution in terms of knowledge processes that allowed exploiting the information provided by the imple- mented system. One manager explained, “I don’t even think we have the process to look at the customer from A to Z. I think the mistake maybe [GTCOM] has made is that we have been very good in putting up the system, but even the underlying process of capturing the needs  of customers  hasn’t  been  well  though  of and hasn’t  been  implemented properly.”

Another manager argued, “Unfortunately,  this is what I have to say that with respect to EDW: we have done the systems and IT side very well, but the other side of it — the knowledge aspect of it — exploiting that knowledge, exploiting that source, and also the skills aspect of the people, there is quite long way to go.”

Corporate  Culture

Corporate culture is widely held to be the major inhibitor or facilitator for creating and leveraging knowledge assets in organizations. Low-trust cultures constrict knowl- edge flow, and companies that have conducted organizational transformation or downsizing, such as GTCOM, face a particular problem in this regard. These companies need to rebuild trust levels in their culture before they can expect individuals to share expertise freely without worrying about the impact of this sharing on employees’ value to GTCOM. Such changes require paying considerable attention to the supporting norms and behavioral practices that manifest trust as an important organizational value (Long & Fahey, 2000).

Since 2002, there has been more encouragement for internal knowledge sharing through committees as a result of transformation from a product-centered to a customer- centered business, and from bureaucratic to democratic management. This may be due to the fact that GTCOM will no longer be able to enjoy its monopoly in the market, and will have to improve its competitive position through organizational transformation and capitalizing on its core competencies, namely, KAC.

However, monitoring  business pressures that were supposed to be drivers for knowledge creation, diffusion, and application did not seem to have helped in total elimination of knowledge hoarding that fears competition and leak of information. One manager argued, “GTCOM has certain visions along that side [KCRM], it is a big project, it takes a long time, needs cultural changes and stuff like that. So that is the challenge we are facing right now.”

Business  Requirements

The biggest challenge to the KCRM projects was the determination of corporate- wide business requirements and knowledge strategy. As there was lack of consensus on defining business requirements and goals of every business unit, there was also lack of consensus on defining data elements (e.g., good/bad customer) among business units as every unit may have its own definition of data elements.

Stovepipe Structure

KM is a cross-divisional and cross-functional intricate endeavor. Plans to make better use of knowledge, as a resource, must be built into the structure and culture of the organization in the medium term. KCRM technology alone was not enough to create a competitive advantage unless it has been coupled with the necessary organizational transformation from silo-based to process-based structure, especially in the front-end business operations, and capitalizing on the power of the intellectual assets of people to improve  the quality of delivered  services  while achieving  better efficiency  and efficacy.

The organizational structure should reflect the needs for better management of knowledge. A special business unit, or a cross-unit task force or team, needs also to be established in order to foster the concept of KCRM in a formal and a holistic approach through experimentation,  documentation,  sharing, and dissemination  of knowledge across different departments. This structural change will allow to improve performance of initiative already in place and to promote new initiative that might be needed, such as the establishment of an electronic library, yellow pages, knowledge maps, that can facilitate the buying and selling of specific knowledge created by workers in different departments within GTCOM.

Stovepipe or silo organizational structure hindered organizational learning among business units, as the organization, as a whole, would not know what it does know. The silo or stovepipe structure led to the fragmentation of activities among many depart- ments, and resulted in the creation of physical and psychological  walls separating business functions, for example, information on mobile and fixed phones that appear to be done independently on an ad hoc basis. The functional-based structure of GTCOM was being overemphasized at the expense of knowledge sharing across departments especially in customer services, which are cross-functional in nature.

The workflow of many processes of the CRM system was very slow and not smooth, and streamlining work flow of fragmented processes is still unresolved in many areas. Interdepartmental communication problems (cultural and technological) are still prevail- ing under the multiple-silos structure.

Business  Integration

Once they lacked a single information repository, companies have traditionally spent large amounts of time and money writing integration programs to communicate between disparate systems. A variety of technological options exist for the implemen- tation of KCRM projects. The adopted hardware, software applications, and databases for the KCRM initiative need to be compatible and operable with the existing legacy systems. The chosen ICT infrastructure needs also to integrate well with other systems

in the organization. Some adjustments may be required to assure a balance between systems requirements and functionality from one side and flow of business processes from the other side.

Evidence of the ineffective ICT infrastructure is the lack of integration with previous technology initiative and legacy systems. There are several problems with integration. First, integration complexity causes delay. Systems will rarely operate in real time resulting in delays in synchronizing  information.  This can cause embarrassment  to companies and aggravation to customers when updates to one channel are not reflected immediately in the others.

The second problem is that integration adds overhead cost. The integration must be implemented, administered, and maintained independently of the actual customer service applications for each delivery channel. The problems of complexity and costs are magnified each time a change is made to a channel application.

Customer’s  Expectations  and Satisfaction

In addition to being inefficient in capturing some customer data, the CRM system still suffers from limited storage capacity/lack of scalability, complexity, limited process- ing speed, and lack of technology fitness in terms of growth and implemented capacity of the  KCRM  projects.  These  shortcomings  of the  system  could  adversely  affect customers’ experiences and satisfaction, as well as employees’ morale.

Power  Users

Knowledge/power users are people who are responsible for generating knowledge about competitors, external market, products, and so forth, using the EDW initiative. Actual knowledge users of the EDW may include people from units such as sales, marketing, market research, and human resource management, although potential users could include other departments such as product development. As business-wide requirements were not effectively identified, so the knowledge requirements of different business units were not being successfully transferred into data entities, and many units did not seem to be constantly using the system. It seemed that heavy usage of the EDW system was at the marketing and sales function, as the culture in other units may not have favored the usage of the system as a source for generating knowledge. One manager maintained, “I don’t know if the finance people use it enough because they do have a SAP system, I don’t know if it is integrated with the EDW.”

Knowledge users of major KCRM systems, for example, the EDW, at GTCOM need to be expanded to include functions other than sales and marketing, such as finance, operations and logistics, and so forth.

Quality of Data

Following an identification of business needs and agreeing on a definition of data elements of the system, data cleansing should be conducted before putting up the EDW initiative. Otherwise, false indications and misleading information would be the outcome. Data accuracy is very critical as EDW systems retrieve data and put them in the required format, but if the raw data were not completely filtered, then the validity of the project’s information would be at risk. Poor data quality at GTCOM resulted from accumulation of much data inaccuracies over the years, and there is a need for conducting an urgent cleansing of these data.

From a technical perspective, there were great expectations as to the capabilities of KCRM systems, but the systems turned out not to be as successful as expected. The system overpromised but underdelivered as it was hard to use for basic queries due to the unavailability of some data elements in the legacy system and quality of data (some data elements were inaccurate and/or incomplete at the data source and data entry level).

Some managers claimed that project management had not considered some prob- lems from the past and, therefore, problems continue to exist with the new systems. According to one manager, “One of the problems that has happened which we have inherited now putting this integrated knowledge-based systems together is that we know all systems had data corruption in the past, and again [GTCOM] hasn’t properly done enough work to clean that data first and then put into the system. Today, for example, [we are] suffering because [we are] basically doing analysis and generating reports and some of it is not accurate.”

The GM of HR explained the data accuracy problem in the HRMS implementation by saying, “What has happened during our trial period is that at the end of the year, I discovered that some people have got a lot of leave days, this is one of the short comings of self-service because it has not been handled properly at line management level. Then I discovered that a lot of people have days of leave outstanding so I questioned and when we checked with the line managers they say, ‘Oh, I forgot to enter it.’ So instead of you having 20 days leave, you were having 60 days leave, and I said to the person or department, ‘OK, all staff above 20 pay them those days in cash to do the balance and not have more than 20 days.’ You know it would have caused me to make the wrong decision because of lack of responsibility of line management.”

Resistance  to Change

The KCRM is a core business initiative that is sensitive to the political environment within an organization. Without complete user support, KCRM projects are doomed to failure. People’s mind-set and resistance to change posed a real challenge to the KCRM program. Some employees did not accept the new system, as it was too advanced for them to cope with. User training was not adequately provided to the right people, at the right time, and for the right duration.

There is a need for new blood as it is too difficult to fine-tune the mind-sets of some employees. More recruitment and training of staff, for example, new graduates, who are capable of absorbing or generating new knowledge, and the incorporation of knowledge creation, sharing, distribution, and usage of knowledge in the performance appraisal of employees could help in the expansion of knowledge usage.

However, GTCOM did not have any formal mechanism for providing financial rewards to members who create, share, or use knowledge. A direct outcome of the lack of financial incentives is the limited willingness of employees to contribute to the knowledge sharing, creation, and leveraging. Changes in GTCOM’s reward system could help in motivating knowledge workers to create, share, and apply knowledge.

Job  Losses

The challenge of job losses was a major part of the restructuring exercise. However, one key executive maintained, “That’s not the object of the exercise, but a drop in headcount is inevitable — and I think our employees accept that. It is a fact of life that monopoly phone operators all over the world has been forced to slim down to become competitive. [GTCOM] has a duty to its customers, shareholders and employees — and refusing to face economic facts will do no favors for anyone in the long run. In the future, job security will be related to our ability to retain customers.”

Vendor’s Involvement

It seems that the focus of the EDW and CRM vendors was limited to customizing and implementing ICT tools, but not ensuring that the process and organization elements were in place for effective management of the KCRM project. An effective vendor’s role and involvement, as well as effective management of relationship with vendors are very essential to the KCRM success.

Organizational  Roles

The lack of structural mechanism for knowledge creation, sharing, and leveraging made it very difficult for many employees to access particular knowledge or even to be aware that knowledge is out there and needs to be leveraged. The absence of a formal position in charge of KM in the corporate structure, for example, CKO, made it very difficult for one group to learn from other groups outside their business functions. The existence of a position such as a CKO helps in defining a formal methodology  in synthesizing, aggregating, and managing various types of CK throughout GTCOM.

DISCUSSION AND CONCLUSIONS

The challenge of competition, after many years of monopoly, is shaking off GTCOM and is forcing it to abandon the old product-led traditions of the telecommunication monopoly and, instead, focus sharply on customers and what they want — not what it thinks they should have — in order to please them and win their long-term loyalty. Focusing on customer  relations  is increasingly  becoming  a weapon used by many service-oriented firms to face business challenges.

GTCOM  has worked  hard to maintain  its strong  market  position  in a highly competitive and turbulent market. It has introduced a KCRM program that meant to optimize GTCOM’s customer-centric knowledge resources, productivity, and proce- dures by maintaining unified and integrated customer views with greater levels of detail and accuracy. However, the KCRM initiative was faced with a number of problems and challenges.

Following the implementation of the KCRM initiative, GTCOM has achieved mixed results, namely, remarkable performance on the financial side but failure at the level of operational excellence and at the level of customer service and satisfaction. Yet the KCRM initiative has to mature into concrete corporate-wide change effort based on a clear plan and strategy, and GTCOM still has a long way to go before being able to fully realize the benefits of the KCRM.

In light of the case study’s findings, one concludes that before launching a KCRM program, there should be a clear understanding of why it is being used, and then focusing on the strategy not technology. One needs to make sure the KM strategy is well defined and well understood before looking at software to implement it. This also means changing long-established business processes and culture.

To conclude, the KCRM initiative at GTCOM was overpromised but underdelivered. Several factors contributed to this failure; paramount among these is the adoption of KCRM as an ICT solution, not a business strategy. The KCRM program at GTCOM proved to be a good case of bad implementation.

LESSONS LEARNED

1.        KCRM strategy needs to be enabled, rather than driven, by technology. In order to keep KCRM projects business-driven rather than technology-driven,  and to reduce employees’ resistance to change and secure a successful buy-in of KCRM projects from end-users, it seems that it would be better to have knowledge/power users champion  KCRM  projects,  alongside  active  involvement,  support,  and participation from senior management levels, as well as IT managers.

2.        Corporate-wide knowledge-sharing culture should prevail to facilitate implemen- tation of KCRM strategies.

3.        Long-term financial performance cannot be secured if customers’ expectations are not being met with satisfactory experiences.

4.        High quality of data guarantees accuracy and efficiency of KCRM reports.

5.        Clear and prioritized identification of business requirements need to be prepared before deciding on the KCRM technology.

6.        Effective management of end-user training programs (EUT) offered to the right people at the right time for the right duration is essential to the KCRM program.

7.        Continued commitment from top management is essential to the success of KCRM

programs.

8.        Streamlining work flow processes is as important as adoption of advanced KCRM

technologies for the success of KCRM programs.

9.        A stovepipe structure with multiple silos hinders business integration, interdepart- mental communication, and full realization of KCRM benefits.

10.      Resistance to change poses a threat to KCRM problems. It seems that having knowledge/power users champion KCRM projects, alongside active involvement, support, and participation  from senior management  and IT managers, help in reducing employees’ resistance to change, securing a successful buy-in from end- users, and keeping the project business-driven rather than technology driven.

11.      Documentation of knowledge gained throughout the KCRM development process, for example, selection, planning, budgeting, scheduling, implementation, position- ing, monitoring, challenges faced, lessons learned, future prospects, and so forth, and making  this knowledge  available  possibly  through  Web-based  platform/ portal, e.g.,  knowledge  repository,  and distribution  of this  knowledge  to all concerned parties (sales, marketing,  customer  services,  IT, as well as senior management) help organizations learn and benefit from their past memories in future projects.

ACKNOWLEDGMENTS

The author acknowledges the very constructive and fruitful comments raised by the reviewer of the case study. The comments have greatly helped in improving this final draft of the paper.

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the KM initiative with a focus on the following four main aspects: strategic, organiza- tional, instrumental, and output.

In the strategic aspect, it was considered that knowledge available and possessed at HS would fall short of the core competence necessary for business success (e.g., chic product design). Therefore, effort was needed to fill this gap by acquiring knowledge from both external and internal sources. From the organizational side, it was thought that knowledge was more valuable when it was shared and exchanged. Thus, a knowledge- friendly culture needed to be promoted through encouraging employees to socialize and share their ideas and thoughts such that new knowledge could be created to broaden their knowledge repositories. At the base level, it was determined that knowledge had to be acquired, stored, and disseminated in a systematic way to enable employees to access and reuse it easily. In doing so, essential knowledge, such as experienced practices in production  skills  and  innovative  ideas  in  product  design,  could  be  captured  and recorded. Individual employees or teams who contributed knowledge useful and relevant to HS were to be rewarded. Last but not least, from an output perspective, it was realized that periodic reviews were crucial for evaluating KM effectiveness and for devising subsequent corrective action, if necessary. Performance indicators such as production efficiency, adoption rate of good practices identified, and clients’ satisfaction were required.

A detailed implementation plan was devised based on the above analysis, which was then agreed to and approved by the top management of HS. The KM program was officially launched in April 2002.

CURRENT CHALLENGES/PROBLEMS  FACED BY HS

After 15 months, HS found that the KM initiative did not generate the positive impact on organizational performance as expected. Organizational performance remained stagnant, revenue  continued  to decrease,  and staff  turnover  rate stayed  high.  Our involvement with HS as an external consultant began after the CEO had determined to find out why and/or what happened. Our assistance to HS was clear — to investigate the situation, to uncover the mistakes, and to look for remedies. A series of semistructured interviews with key employees in the managerial, supervisory, and operational levels were therefore conducted. Table 2 summarizes our findings.

As seen, a good start does not guarantee  continuity  and success (De Vreede, Davison, & Briggs, 2003). First, two crucial reasons were identified as to why HS was unable to bridge  the knowledge  gap. They were (1) the top management  was too ambitious or unrealistic to grasp and incorporate the “best” knowledge in industry into the company and (2) their insufficient role support in encouraging the desired behavior. Similar to many other KM misconceptions, top management wrongly aimed at incorpo- rating other enterprises’ best practices (e.g., product design of the fad) or success stories (e.g., cost cutting and streamlining operational processes) into its repositories without considering the relevance, suitability, and congruence to its capabilities. Therefore, this “chasing-for-the-best” strategy soon became problematic and departed from its KM goals. HS did not gain business advantages, such as unique product design and value- added services to customers, and were still unable to respond to the marketplace swiftly.

EXECUTIVE SUMMARY

Knowledge  is increasingly  recognized as providing a foundation for creating core competencies and competitive advantages for organizations, thus effective knowledge management (KM) has become crucial and significant. Despite evolving perspectives and rigorous endeavors to embrace KM intentions in business agendas, it is found that organizations cannot capitalize on the expected benefits and leverage their performances. This is a case study of an organization in Hong Kong. It is a typical organization with a strong awareness and expectation of KM, yet its program failed within two years. Our findings show that KM activities carried out in the organization were fragmented and not supported by its members. Based on this failure case, four lessons learned are identified for use by management in future KM initiatives.

BACKGROUND

Founded in 1983, HS (the actual name of the company is disguised for confidenti- ality) is a Hong Kong-based enterprise with a production plant in mainland China. HS is primarily engaged  in the production  and export of handbags  and leather premium products to the United States and European markets. The current CEO is the second generation of the founder. Like many companies in Hong Kong, HS centralizes all its strategic planning and decisions, as well as sales and marketing functions at its head office in Hong Kong while doing the production and assembly work across the border for low production cost. Appendix 1 is the organizational chart of HS. It is found that the head office has 10 staff including a CEO, a general manager, a sales manager, an operation manager, and six other administrative staff. The production plant in China has 450 staff including 40 managerial, supervisory, or administrative staff and 410 skilled workers. Over the years, HS has expanded its range of products and production capacities and resources in order to seize market opportunities and has enjoyed quite healthy growth in terms of sales turnover and profits.

SETTING THE STAGE

Business began declining with double-digit  revenue losses in 1998. This was primarily attributed to the fierce competition in the markets and soaring production cost. For example, some competitors were offering drastic price cuts in order to obtain business contracts. Also, new product designs did not last long before being imitated by the competition. The CEO and the senior management team began planning the future of the company and to look for ways to improve the efficiency and productivity of its employees. Business continued to deteriorate, so that by 2001, in order to find out what had gone wrong, the CEO formed a strategic task force consisting of all managers in Hong Kong, several key managers responsible for the production plant in China, and himself to look into the matter. After two weeks of exploration (including observation and communicating with other staff in the company), the strategic task force concluded that knowledge within the organization was ineffectively managed; specifically, there was low knowledge diffusion from experienced staff to new staff, and high knowledge loss due to turnover. Driven by traditional management philosophy, the CEO and the strategic task force believed that they understood the organizational context better, and thus decided to undertake an in-depth investigation through internal effort instead of hiring an external consultant.

CASE DESCRIPTION

In June 2001, the strategic task force carried out investigation, observation, and interviews of employees in various departments. After three months, they identified the knowledge management (KM) issues summarized in Table 1.

From these findings, the strategic task force determined that open communication and discussion was necessary and effective to further examine the KM problems, and therefore called for a couple of meetings with managers and supervisors. In order to encourage open discussion, the meeting was conducted in an informal manner instead of the frequently used formal discussion (such as predefined order for reporting departmental issues). Furthermore, the room setting was changed with seats arranged in a circle to allow everyone to see each other and a flip chart was made available to jot down immediate thoughts. More importantly, everyone was encouraged to express his/ her thoughts, opinions, and feedback from a personal perspective or collective stance (e.g., comments from subordinates).

The results of the meeting were encouraging as many participants expressed their opinions and comments eagerly. In particular, staff in the meeting agreed that KM was neither an extension of information management nor solely a technology application to capture, organize, and retrieve information or to evoke databases and data mining (Earl & Scott, 1999; Thomas, Kellogg, & Erickson, 2001). Instead, knowledge was embedded in people (e.g., skills and actions), tasks (e.g., production process), and the associated social context (e.g., organizational culture) that involved communication and learning among loosely structured networks and communities of people. Therefore, individuals/ employees were crucial to the implementation  of KM initiatives  by utilizing their knowledge and skills to learn, share, combine, and internalize with other sources of knowledge to generate new thoughts or new perspectives.

With the above results, HS decided to devise and launch a KM program with an aim to institutionalize  knowledge  diffusion  among employees  and leverage  knowledge creation for quality products. Instead of a top-down approach of policy making, the management adopted a middle-up-down approach (Nonaka, 1994) with supervisors as the major force to leverage and promote KM throughout the organization. To enhance acceptance and lessen resistance to change, HS chose a new product series to try out

Second, the mere presence of KM vision is not sufficient to guarantee KM success. Most employees commented that top management involvement in the KM implementa- tion was volatile and appeared to be a one-shot exercise (Gold, Malhotra, & Segars, 2001). For example, the KM program started well with noticeable initiative to identify untapped knowledge from various sources, yet fell behind the expected goals as top management involvement was remote (e.g., leaving the KM effectiveness as departmental responsi- bility) and support was minimal (e.g., time resources available for knowledge sharing and creation). Thus, the two factors directly hampered the employees’ dedication and belief in KM as a significant organizational move.

Third, from the organizational aspect, even though various social activities such as tea parties were used to foster a friendly and open organizational culture, we found that most of these knowledge-sharing activities were futile because no specific and/or appropriate guidelines for such sharing had been devised (Nattermann, 2000). As a result,  instead  of  having  discussions  that  were  directly  related  to  tasks,  or  least contributed to idea generation, frequent chats (e.g., gossiping) among employees and wandering around were found. Many employees were confused with what the sharing was all about. Some employees  even perceived KM negatively  as interfering  with activities important to their daily tasks, creating resistance to participation in what was perceived to be a temporary fad.

Fourth, the instruments used to help acquire and stimulate knowledge creation and sharing encountered problems during implementation. The fallacy of knowledge acqui- sition with reliance on external sources (such as the existing practices addressed by competitors)  undermined  employees’  intent  to explore  the available  but untapped knowledge resident in their minds (Bhatt, 2001; Nonaka, 1994). The use of information technology to drive knowledge storage and sharing, in principal, was conducive to employees. Yet, the silo organizational structure of HS with disentangled databases for knowledge capture caused more harm than good. Some employees asserted that they did not have the incentive to access or utilize the departmental knowledge handbook and procedural guidance (available from databases) as it is a time-consuming endeavor to dig from the pile of information. Some employees found knowledge incomprehensible as it was presented and stored in various formats, with jargons and symbols that were neither standardized nor systematized across departments.

Fifth, although a reward system was established for knowledge creation and/or sharing, the emphasis on extrinsic terms, such as a monetary bonus, turned out to have an opposite and negative effect on cultivating the knowledge-sharing culture and trust among employees.  Some employees  commented  that knowledge  should be kept as personal interest (i.e., not to be shared) until they felt that they could get the monetary reward when shared or recognized by management. Other employees found that harmony and cohesiveness within the team or among colleagues were destabilized as everyone maximized individual benefits at the expense of teamwork and cooperation.

Sixth, there was a misleading notion that IT could be “the” cutting-edge solution to inspire KM in organization. Despite the introduction of IT tools to facilitate knowledge capture, codification, and distribution, it was found that IT adoption and acceptance remained low due to employee preference for face-to-face conversation and knowledge transfer instead of technology-based  communication, and the general low computer literacy that intensified the fear of technology. In addition, given the insufficient support from management for IT training and practices, employees, particularly those who had been with HS for a long time, had strong resistance  to new working practices for facilitating KM.

Seventh, it was noted that the KM initiatives were left unattended once imple- mented. It remained unclear as to how to exceed existing accomplishments or overcome pitfalls of the KM initiatives, as there was no precise assessment available. For instance, the last survey evaluating the adoption of best practices from departmental knowledge was conducted a year ago, without a follow-up program or review session. Another example was that the currency and efficacy of the knowledge recorded in the departmental handbook appeared obsolete as no procedures were formulated to revise or update the handbook.

Last but not least, an undue emphasis and concern with the “best-practice” knowledge at HS to improve short-term benefits (e.g., to exploit existing knowledge in order to achieve production efficiency) at the expense of long-term goals (e.g., to revisit and rethink existing knowledge  and taken-for-granted  practice in order to explore innovation and creativity opportunities). Some employees pointed out that they were inclined to modify existing practices rather than create new approaches for doing the same or similar tasks as recognition and positive impacts can be promptly obtained.

EPILOGUE

To date, KM is considered an integral part of a business agenda. The dynamics of KM as human-oriented (Brazelton & Gorry, 2003; Hansen, Nohria, & Tierney, 1999) and socially constructed processes (Brown & Duguid, 2001) requires an appropriate deploy- ment of people, processes, and organizational infrastructure. This failure case presents the challenges that could be encountered and coped with in order to accomplish effective KM implementation. The people factor is recognized as a key to the successful implemen- tation of KM from initiation, trial, to full implementation.  KM is a collective and cooperative effort  that requires  most,  if not all, employees  in the organization  to participate. KM strategy and planning should be organized, relevant, and feasible within the organizational context. One’s best practices and winning thrusts may not be well fitted to others without evaluation for fit and relevance. A balanced hybrid of hard (e.g., information technology) and soft infrastructure (e.g., team harmony and organizational culture) is needed for success.

LESSONS LEARNED

Knowledge management is increasingly recognized but its challenges are not well understood. To institutionalize a KM program, organizations can draw lessons from this failure case so as to construe what imperatives are needed and what mistakes should be avoided. Management issues and concerns are highlighted as follows.

Lesson 1: Start with a KM Plan Based on Realistic

Expectations

The mission and behavioral intentions of leaders have a strong impact on employ- ees and where to aim and how to roll out KM processes (KPMG, 2000). In this case, it is appreciated that top management  recognized  its organizational  ineffectiveness  and initiated a KM plan as a remedy. We suggest, however, that planning based on unrealistic expectations undermined its ability to successfully direct future actions. Therefore, management has to be reasonable in setting KM goals, perceptions, and beliefs. It is suggested that a feasibility assessment of organizational infrastructures (e.g., financial resources, technology level) and organizational climate (e.g., employees’ readiness to KM, resistance to change) be conducted to define the KM principles and goals. Inspirational aims, which can be reasonably and feasibly accomplished,  encourage employees to assess their personal knowledge and transfer others’ knowledge when it is shown to enhance existing practices and can help meet new challenges.

Lesson 2: Management Support is a Strong, Consistent, and more Importantly, Cohesive Power to Promote KM

It is evident that vision without management support is in vain and temporary. As valued most by the HS employees, continuous corroboration from top management is indispensable to motivate their commitment toward knowledge-centric behaviors for long-term competitiveness (Lee & Choi, 2003). Therefore, beyond visionary leadership, management should be willing to invest time, energy, and resources to promote KM. At its core, management could show their enthusiasm in a boundless and persistent way, including vocal support,  speech, inaugural  memo, and wandering  around different business units to invite impulsive idea generation and knowledge creation from all levels of staff. Also, management could champion the KM process and lead by example with employees who are receptive to KM.

Lesson 3: Integration of Monetary and Nonmonetary

Incentives

To stimulate KM behaviors, specifically sharing and creation, it is important to assure a balanced reward system integrating monetary and nonmonetary incentives that fit various forms of motivation (Desouza, 2003). In the beginning of the KM programs, employees needed to be shown that personal benefits could be obtained from KM success with improvement  in products,  processes,  and competitiveness.  Therefore, rewards that are direct, monetary-based, and explicit are useful. For this, management can provide salary increase or promotion.  With the passage of time, rewards could be extended to something implicit. For instance, management can publicize those employ- ees’ names and respective ideas that contributed to organizational processes, or provide skills-enhancement program to enable employees to see their importance with extended job scopes. Moreover, management can consider rewards systems geared toward individual or team achievement so as to encourage more interaction, creativity, team- work, and harmony among people.

Lesson 4: KM has to be Cultivated and Nurtured, which is not a Push Strategy or Coercive Task

As shown in this case, KM is not a singly motivated exercise. It requires a collective and cooperative effort to put into effect various resources. Other than the vision and top management support, operational staff can greatly affect the success of the KM program. Their influences affect attitudes, behaviors, and participation in KM and could exert positive impacts on KM effectiveness if managed properly. For attitudinal changes, efforts have to remove or at least alleviate employees’ negative perception toward KM. For example, the fear and misconception that KM is a means to downsize organizations for efficiency or as heavy workload which requires much IT expertise. For behavioral changes, we highlight a supportive working environment where employees can have ample time to engage in KM endeavors, such as sharing and creation, a fair and positive culture where everyone is valued and encouraged to contribute to KM effectiveness, is needed. To encourage participation, pushing or mandatory activities are least effective. Coupled with the rewards systems, employees should be inspired to take risks as learning steps for KM success. Unexpected failure or unintended results may cause management to call for a break to identify the causes and remedy solutions. Do not quit or blame, otherwise, mutual trust and commitment to work with the KM processes will be lessened.

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EXECUTIVE SUMMARY

This case study reflects the work of a global organization in its knowledge management efforts to sustain and transfer learning from a global leadership development curriculum. It focuses on the Knowledge Management (KM) solution developed to support employees to sustain their learning, to enable them to share their insights and experiences with others, and thus increase organizational capability. The paper is written to illustrate an example of a large organization’s efforts to engage employees to share their learning from a management programme across geographical and cultural boundaries.

INTRODUCTION

This  case  study  reflects  the  work  of a global  organization  in its  knowledge management efforts to sustain and transfer learning from a global leadership develop- ment curriculum. It focuses on the Knowledge Management (KM) solution developed to support employees to sustain their learning, to enable them to share their insights and experiences with others, and thus increase organizational capability. The paper is written

to illustrate an example of a large organization’s efforts to engage employees to share their learning from a management programme across geographical and cultural bound- aries.

Georgensen (1982) estimates that learners retain approximately 10% of material covered in a tutor-led workshop when back at the workplace. The KM strategy in this project was to support high-performing, high-potential employees to retain a greater proportion of the tutor-led learning and experience. This in turn increases organizational capability by transferring the learning to colleagues and delivers a greater return on investment to the business.

A key challenge of the KM strategy was to effectively manipulate existing KM

platforms within the business and research and propose the use of additional ones.

The issue was to make best use of the current multiple resources in the organization, acknowledging that not one of them was totally suited to meet the needs across the globe. The Learning and Development team worked to find a solution with either a range of existing platforms or, as a result of research and testing of new technologies, a new KM platform to support the strategy.

There are a number of cultural challenges associated with implementing effective KM across a global organization with presence in over 100 countries, with different levels of technology sophistication, language, and experience. Revenue-generating business demands mean implementing  an effective  KM strategy with “learning”  content as another challenge entirely. For example, time spent documenting personal reflections from learning and on-the-job experiences, and reading others’ reflections from learning and on-the-job  experiences  struggles  to  compete  with  business  opportunities  that deliver an immediate bottom-line return.

The nature of the insurance industry is relationship based. Interaction has histori- cally been, and still is, predominantly face-to-face or over the telephone. As Nixon (2000) confirms, many other industries have found implementing effective technology-based KM solutions with only face-to-PC interaction is a cultural and pragmatic challenge. In their everyday role, brokers prefer to pick up the phone and talk to someone or go to see them versus logging on to a computer, entering a password they need to have remem- bered and change regularly  to maintain  security protocols.  The Lloyds of London broking environment, established in 1688, reinforces the face-to-face relationship-based culture. Experience of working with an internal client group to support employees to use the system suggests that if the Internet connection  is slow or a password is typed incorrectly thus denying access, users will pick up the phone before trying again, or worse, will avoid the system in future.

BACKGROUND

The  Organisation

Marsh Inc. is the world’s leading risk and insurance services firm. Its aim is “[t]o create and deliver risk solutions and services that make our clients more successful.” Founded in 1871, it has grown into a global enterprise with 400 owned-and-operated offices and 42,000 colleagues, who serve clients in more than 100 countries. Marsh’s annual revenues are $6.9 billion, and the company meets client needs in two principal categories:

•          Risk Management, insurance-broking, and programme-management services are provided for businesses, public entities, professional services organisations, private clients, and associations under the Marsh name.

•          Reinsurance-broking, risk and financing modeling, and associated advisory ser- vices are provided to insurance and reinsurance companies, principally under the Guy Carpenter name.

The organisation is made up of distinct divisions with specialist knowledge. One of the key business  drivers  for the future is to maintain  and develop  the specific knowledge within each of these divisions, while sharing more learning and experiences across the business, particularly to reduce “reinvention of the wheel” comments across divisions and geographies.

SETTING THE STAGE

Knowledge Management Platforms in Learning

Newman (1991) defines KM as “the collection of processes that govern the creation, dissemination, and utilization of knowledge.” The cascade and consistent communica- tion of corporate goals and performance management is pivotal to business success, learning interventions, and employees’ personal development.  In 2000, Marsh made a fundamental shift in the mechanism used to cascade company strategy across the globe. Local performance management tools, processes, and procedures were replaced with one common approach to aligning goals and consistently measuring performance with the Balanced Scorecard.1

At the beginning of 2001, there was no common, pan-European technology platform specifically targeting learning and the consistent documentation of learning in Marsh. E-mail provision was the one common tool and platform across the globe. The company had a variety of software to support the creation and application of databases and had the capability to share databases across geographies, through shared network drives, Internet-based secure “filing” programmes, Microsoft Access and Lotus Notes programmes. Few employees were aware of the range of these capabilities and even fewer were aware of how to manipulate such tools.

In 2001, the firm implemented a global learning management system with specific, pan-European capabilities including e-learning, registration for tutor-led learning, and an online lending library with books, CDs, tapes, videos, and computer-based training (CBT). The system also provided the capability to record for each learner what learning they had accessed and to allow an “approver” path for line manager involvement and alignment to learning. Usage statistics have increased from 11% of the total European population in 2001 to more than 28% in 2004.

In 2002, the organisation launched a company-wide portal, an interactive client and colleague platform to source information about Marsh to both external and internal requestors. The portal is intended to ultimately replace local country-specific intranet

sites. The learning management system is now operating effectively from this medium. Local intranets  are still in operation  across  Europe  providing  more  specific  local information to employees with the portal offering a platform that spans the entire region and links to colleagues and learning in the United States.

The business is using a number of communication tools to promote cost-effective knowledge sharing, the most common being an interactive, Internet-based tool WebexTM, used alongside the telephone for conference calls to share presentations, documents, and access to specialised software. This tool allows Internet dialogue over the course of a meeting and has “ownership” rights for a person or persons to own a presentation document and to be able to make adjustments online in real time with feedback from the conference call participants. This tool can also be used with external clients and has been particularly useful  in  sharing  across  boundaries  as  all  colleagues  have  a  desktop computer and access to a phone.

CASE DESCRIPTION

This paper will specifically focus on the KM strategy implemented for the European implementation of a global leadership programme. The programme is one of three core programmes in a Global Leadership Development Curriculum and targets high-perform- ing, high-potential colleagues with people management responsibility. It is a three-day off-site event. Titled “Managing Essentials,” it was launched in the spring of 2002. The business used an external provider to deliver across the globe with a core team of dynamic and experienced facilitators. This strategic decision enabled consistency of message, delivery, language, and experience.

The audience for the programme is diverse in years within the organisation and in the industry, time in a management role, geography, and first language. In Europe alone, the target population of colleagues to attend the programme in the first 18 months was close to 500 (50% from the United Kingdom and 50% from continental Europe). Results from employee surveys and dialogue on the programme demonstrated the need to create ownership and responsibility for change at this level. The Learning and Development (L&D) network of colleagues managing the programme at the local level across the globe is also diverse. Technology has played a key role in communicating across geographies with both the delegate and the L&D communities by way of the telephone, Internet, e- mail, various global software platforms, and even camera.

The ultimate KM strategy for Managing Essentials is to improve organisational capability and capacity.2     Underpinning this are four main goals:

1.        For delegates of the programme to sustain their learning of best-practice manage- ment tools and techniques

2.        For delegates to sustain the pan-European colleague network from the programme

3.        For delegates to share their learning and lessons learned from implementation with other colleagues

4.        To demonstrate a measurable return on investment against the learning intervention

Next is an account of what actions have been taken to address each element of the strategy and the observed outcomes to date. Georgensen’s (1982) hypothesis of learning

retention was a key factor in the design of the strategy with pre- and postcontact with delegates at progressive intervals to reinforce the learning. For this reason, the material that follows identifies the cycle stage of the actions taken to the programme (pre, during, or post).

Sustaining  the Learning

Pre Event

High-performing, high-potential colleagues were the target audience for Managing Essentials because this population was generally known to be more capable and willing to cascade learning, lead by example, and to therefore impact the majority of colleagues as a result of their experience on the event. To ensure appropriate employees with this skill set were exposed to the learning, employees could not self-register for the programme but had to be nominated by a senior colleague in their business.

To combat cultural issues that historically reinforced silos within the business and across  geographies,  Managing  Essentials  is  delivered  at  a  pan-European  level  as opposed to local country level. Nominations are managed by the Programme Manager through the database to ensure a 50/50 split of participants from the UK and continental Europe. The deliberate mix of delegates on each event, sharing and cascading knowledge and breaking down business segment and geographical boundaries, has been recognised by delegates as a core strength of the programme.

During the Event

Every delegate received a hard copy binder of materials covering the learning models and references from the three-day event and supplementary reading materials and references. The facilitators referred delegates to their binders throughout the programme and ensured key action points were documented in the binder to encourage participants to refer back to it and use it when back at the office.

On approximately 60% of the conference calls held with delegates post event, at least one employee referred to his/her frequently returning to the binder to remind him/ her of his/her learning. Many claimed to keep their binder on their desk where it could be easily referred to.

Post Event

The Marsh internal Learning and Development team developed a sustainability timetable post programme using a variety of KM tools. A summary of activity is noted in Table 1.

Months three, six, and 12 of the postprogramme plan were proposed in first quarter 2003, but have not yet been fully implemented. Europe has consistently implemented up to the three-week stage in this timeline and has sporadically implemented the six-week and onwards activities.

Each of the KM tools and practices used in the above timeline has its pros and cons. The objective of using this range of tools and methods is to provide an overall synergy to all the learners involved, appreciating different learning styles. The feedback the team has had is that the facilitated conference call is useful for reminding delegates of their learning and bringing the “community” back together again. The conference call does not, however, lend itself to support those colleagues who speak English as a second language and the transcript of the call, while a valuable record of verbatim comments and stories, is detailed and time consuming to analyse at a later date.

As the  networking  opportunity  of the  event  holds  such  great  wealth  for the participants and lends itself to the transfer of knowledge both to the network after the event and to their colleagues back in the office, a digital photo is now taken on site on the last day of the programme and circulated to the delegates approximately two weeks afterwards via e-mail. For those people who learn more effectively in a group and through visual stimulus (as opposed to audio or kinesthetic), the photo provides a reminder of the experience and the learning.

The A5 laminate needs no translation, it’s colourful, and delegates do not need to actually “do” anything with it other than hang it somewhere prominent on their desk as a reminder. When walking around the offices, these laminates are becoming more and more visible with the numbers of colleagues attending the programme. This is a simple way to cascade the message as yet other colleagues ask questions about the laminate on the desk and the explanation cascades the learning.

The central conference would provide value to the delegates and the organisation, but taking more than 250 colleagues out of the business for a day and bringing them to a central location has financial and work flow implications. A compromise suggested by the participants has been to hold local country conferences. This is something the team considered implementing in fourth quarter, 2004.

Three years after implementation, the learning management system the business has implemented globally is becoming a powerful tool. European colleagues are beginning to embrace the tool although they are just scratching the surface to use it to its full functionality. Employees have been forced to become familiar with the system and to register for learning events through this medium where previously they called through to a learning team to manually register for events. Many, however, are not using the personal learning history, assigning a mentor, or reporting functionality of the system. The second e-mail sent at the two-week stage post programme (above) targeting the high- performing, high-potential employees, enforces strategic organisational goals of em- ploying more blended learning, promoting the learning management system, e-learning, sustained learning, and the use of technology as a learning tool.

Transferring the Learning Across the Organisation

During the Event

Key learning from best-practice networks of learning professionals in the United Kingdom led to the discovery of Unilever’s3   Transfer of Learning tool known as APT2 (Acquire, Practice, Transfer to Job and Transfer to Colleagues). This tool has been consistently utilized at the end of each of the three days in the Managing Essentials programme. Delegates identify and publicly document what learning they have acquired, how they will practice that learning (in a safe environment where they can afford to make mistakes), how they will transfer the learning to the job, and how they will transfer the learning to colleagues. At the end of each day, this is recorded by each participant on post-it notes and posted on flip charts, where it stays over the duration of the programme. Delegates can add to it as required over the three days. After the event, the data are recorded electronically by the programme management team for redistribution to del- egates by e-mail, primarily providing an aid to sustain the learning but also to remind and share with the group how everyone committed to transfer the learning. Feedback on this process has been that it is a useful reminder of the programme content as everyone records what key learning they have acquired each day, and a generator of ideas of how to implement the learning. This record is also used as a tool to describe to senior leaders what key learning the participants are taking away from the programme and what they are committing to do back in the office on their return.

One of the richest sources of knowledge transfer and sustainability is storytelling. The power of the true story, the real experience of someone in the room or someone the participants know as a colleague has an impact few, if any, other mediums can match. Participants in the programme, like many others in the financial services industry, are rarely satisfied with theories. They need proof, not simply of how something has worked but of how something has worked in their environment under the same pressures they work under. The external providers Marsh work with to deliver the learning are insightful in the way they share their stories and experiences to emphasise and reinforce learning points. A key aspect of the KM strategy has become to collect, collate, and share participant stories across the relevant geographies, where a colleague can be named for their success at making a difference — not only for the what, but also the how — after attending the programme. The KM strategy reflects this as participants are asked to attend conference  calls post programme  and to share a story of their learning and implementation back at the office.

The stories from the conference calls are cascaded (with employee permission) back to the external providers who facilitate the programme. The external facilitators also elicit stories from participants over each three-day event, record the story and the source, and then use these stories at future events. For delegates experiencing later programmes, this makes the experience tailored when they hear the external facilitators referencing known employees and their real experiences with the material. One example of such a story was that of a woman who consistently used four key questions with her team in monthly one- to-one meetings. She had read a number of texts and had experimented with a variety of tools to develop her people to be proactive, show initiative, and involve her when appropriate. She shared these four questions on the programme and her experiences in asking them of her team; how they first reacted, how they reacted over the short term, and how they react today. As a result of her story and the reaction of the group on the programme, her story and the questions are now included as part of the learning event. A testament to the KM efforts is the fact that on recent programmes in Europe, delegates have brought this story to the workshop, having heard it from other colleagues or seen it practiced.

Demonstrating  Return on Investment

Pre Event

At the launch of the first programme, all nominations were collected through e-mail. The team relied on e-mail to communicate the new programme and to connect with the target population. Lists of nominators, nominees, and delegate information were initially collated by a central team on a programme-by-programme basis on spreadsheets. Over time, as management information reporting was required, a more functional database was developed allowing  easy access to all details of attendees  from across Europe  by country,  business  unit, programme  attended,  and nominator.  The ease, speed,  and flexibility of reporting available in this database has increased efficiency and accuracy in the information reported. For example, one leader in the business asked for a report of all the colleagues in his/her business unit who had attended the programme over a given time period. The leader used the list to ask all those colleagues who had attended to make a formal presentation in a full office meeting to share their knowledge. The learning management system has now been successfully implemented throughout the majority of Europe  and options  are currently  being generated  to maximise  this facility  in the nomination of participants, ensuring cross-business unit and cross-geography partici- pants on each programme.

A three to six month Business Challenge is a key part of the prework for participants. The Business Challenge was devised together with the external provider delivering the workshop and the global Learning Team. The Challenge is agreed upon with the local line manager and brought to the event to share, discuss, and create an action plan. The Challenge meets a number of the KM strategy criteria in that it aligns the individual and his/her manager to a business output of his/her learning and demonstrating a return on investment measurement (subject to the goal being specific, measurable, achievable, realistic, and timed).

The Business Challenges are one example of thread being sewn between many of the delegates as discussion is generated when delegates realize many have the same or a very similar Challenge, albeit in a different business unit or geography. Connecting cross-function and cross-geographical border issues and people continues to be a focus for discussion  around the return on investment  for the event. The postprogramme conference calls have begun to identify business opportunities across divisions in the organization and direct revenue-generating projects as a result of the network estab- lished and promoted at the event. It is hoped that in time these trends and successes will be recorded by delegates on an Internet-based platform for any employee to see, learn from, and follow.

The networking and quick understanding of the knowledge and business represen- tation in the room is a fundamental quick win of the curriculum and the platform on which further learning will be maintained and shared. Feedback after the first few programmes in 2002 alluded to the struggle to get to know everyone and how they contributed over the three-day event. As a result, Europe implemented an additional prework assignment named Background Information. Each participant was asked to complete a brief electronic proforma prior to the event documenting his/her name, office location, business unit, three to six month Business Challenge, time of service with the company, greatest achievement while at Marsh, and what they do on a Sunday afternoon. These data are e-mailed to the Programme  Manager  to be collated  into a simple spreadsheet  and circulated to delegates at the beginning of Day 1 of the event to help people know and remember colleagues they meet and learn from. This document is also circulated after the workshop by e-mail, along with an e-mail distribution list to encourage the network to sustain and grow.

Post Event

Marsh Europe invested in a questionnaire distributed to a random selection of colleagues who had attended the programme. These questionnaires were sent out to delegates six to eight months post event through an online Web-based interview tool allowing the results to be recorded electronically and transferred into a database for future reference. The outcome of the questionnaires was verbatim comments leading to a number of conclusions about the event itself, the impact of efforts to sustain learning, and the needs for KM tools.

The feedback identifies that while colleagues felt that the programme gave them much material to enrich their personal effectiveness, few were able to make the connec- tion to how the learning had impacted the organisation. The Business Challenge template has been revised in the third year of delivery of the programme to include a specific question to the delegate of the hard-dollar value of the business challenge they hope to complete as a result of their learning. These documents are signed before each delegate leaves the event and sent to a central global team to collate. The next step proposed in this process, with a high-man-hour intervention, is to go back to each delegate three to six months after the programme to reconcile proposed dollar return with actual return to clearly demonstrate a tangible bottom-line impact. One particular Business Challenge has estimated a return equal to the financial value of delivering one Managing Essentials event for 30 employees.

It has been agreed to investigate the development of a leadership “portal” which would also enable colleagues across Europe to interact, share learning and lessons learned to a greater proportion of delegates with the tool targeting all those who have attended Managing Essentials, rather than those who attend each individual programme.

KM Across the Learning and Development Community

The global Learning and Development network has been investigating KM oppor- tunities  to enhance  and  ensure  consistency  in the  role  of colleagues  increasingly involved in managing this programme around the globe. Through the programme’s life of just more than two years, colleagues in different geographies have approached its implementation in slightly different ways, all sharing their experiences with the global Programme Manager based in New York. The global Learning network is now looking to use a specific  database  functionality  through  the cross-company  e-mail  system  to communicate with each other, store documentation, and to share tasks.

The decision to use this particular database came after consideration of a number of internal options, including a Microsoft® Access database, use of an intranet, and use of technology known as E-Room. None of the above media allowed an economical, easy global access and storage of documents along with online interactive communication through electronic discussion boards. The Access database would be difficult to share and update across the globe on each regional internal network. Ensuring secure access to the intranet site to restrict access to only L&D colleagues would come with compara- tively high expense on a direct cost basis and the “one more log-on and password” toll to colleagues in using it. The E-Room facility offered the closest match as a type of online filing cabinet where information could be stored, e-mails could be sent and access levels could be dictated; unfortunately, this option was prohibitively expensive for the number of users anticipated over the foreseeable future.

While the chosen  database  is not the most visually  stimulating  platform,  the challenges of the other options make it the most practical and economical solution.

CONCLUSIONS

The KM strategy for a core Leadership Development programme in Europe is to sustain learning for colleagues who attend, cascade learning to others, and demonstrate return on investment from the event. While the organization had a number of KM tools available in various geographies, these were mainly used to manage day-to-day business knowledge. Sharing of learning materials and experiences was a relatively new concept in the organization.  The existing tools have been flexed to implement a structured programme of interventions to increase organizational capacity through this sharing of knowledge. There is now a set of tools and practices in place to reinforce and cascade the  learning across Europe aligned to the organizational  culture using a variety of mediums including, but not limited to, the PC. These tools and practices are being shared in the internal learning community across the globe. The foundations of the strategy are in place and are being executed. It is too early to confirm the long-term success of this solution, but feedback to date suggests the strategy is supporting sustainable KM and breaking down geographical and business silos to improve organizational capacity.

REFERENCES

Georgenson, D.L. (1982). The problem of transfer calls for partnership. Training and

Development Journal, 36(10), 75-78.

Kaplan, R., & Norton, D. (1992). The Balanced Scorecard—Measures that drive perfor- mance. Harvard Business Review, 70(1), 71-79.

Newman,  B. (1991). From the introduction  to “An open discussion  of knowledge management.” Retrieved from www.km-forum.org/what_is.htm

Nixon, N.M. (2000). Common knowledge: How companies thrive by sharing what they know. Boston: Harvard Business School Press.

Introduction Deloitte & Touche is one of the U.K.’s largest firms of chartered ac- countants and management consultants, with twenty-four offices and over 6,500 staff nationwide. The U.K. practice of Deloitte Touche Tohmatsu (DTT) is a global leader in professional services with over 72,000 employees in 129 countries. With the mergers and acquisitions The views expressed in this chapter are the author’s own, and not necessarily those of Deloitte Touche Tohmatsu (DTT) or any national practice thereof. No legal liability is accepted by the author, DDT, or Deloitte & Touche for any use made of this work.

The author wishes to thank Laurence Capus for her contribution to a first draft of this chapter. of recent years, and the drive to generate new business, the interna- tional firm has been able to consolidate its position as a leading prac- tice, with worldwide fee income of over $7 billion. DTT provides a range of services delivered through specialist, multifunctional teams, designed to meet the requirements of the principal business sectors that we serve. These teams, which are organized on a national basis, can draw on a complete range of assurance and advisory, tax, corpo- rate finance, reorganization, insolvency, forensic, management solu- tions, management consultancy, and other business services, thus bringing together our expertise in each sector to benefit clients. We are one of the global leaders for audits of the world’s largest companies, and our largest clients include major companies from all industry sectors. This chapter explains the use of CBR in a specific business problem domain, namely, internal control evaluation, draw- ing on the experience from Deloitte & Touche UK.

The Problem

The Cadbury Committee established the UK Code of Best Practice on Corporate Governance for business in 1992.

The Code of Best Practice states that UK company directors should report on the “effectiveness” of their company’s system of internal control. An opinion on the ef- fectiveness of the system of internal control is not required, but an in- creasing number of UK companies give such an opinion. However, there was no general guidance on how these reports on effectiveness should be done or even on the form or content of the re- ports until a Joint Working Group produced the “Internal Control and Financial Reporting” document in December 1994. This document fo- cused more on a subset of internal control, namely, internal financial control. The principles explained in this document have been relevant to all UK business enterprises. The “Internal Control and Financial Reporting” document described some general principles, but the ex- act formats of companies’ directors’ statements were not prescribed, although it was suggested they might appear in separate statements or other reports than financial reports.

Since then it has been recommended that annual reports for UK companies include specific statements: these statements should confirm that the company’s directors are responsible for the company’s system of internal financial control. The statements also should describe the key control elements that the directors have set up, warn that these key con- trol elements can only give “reasonable and not absolute assurance against material misstatement or loss,” and attest that directors have re- viewed the effectiveness of the system of internal financial control. The different criteria for assessing effectiveness may be categorized as:

■  The company’s control environment. These elements may include controls regarding management involvement in business opera- tions and monitoring progress, control over transactions, ade- quacy of division of responsibilities, and appropriateness of plan- ning and implementation.

■  Identification and evaluation of risks and control objectives. These el- ements may include controls over the appropriateness of business systems and risk analysis processes.

■  Monitoring and corrective action. These elements may include the level of compliance with control criteria, reviews and checks, levels of reconciliations, scope and frequency of evaluations, and appro- priateness of internal audit.

■  Information and communication. These elements may include ap- propriateness of flows of internal and external information, use of IT, completeness and timeliness of information, and appropriate- ness of follow-up actions by management.

■ Control  procedures. These elements may include control over viola- tions of relevant laws and regulations, general computer controls in- cluding access to data, control over financials (such as treasury, credit given to customers, inventory, etc.), and cash management in general.

■ Appropriateness of reporting. These elements may include appropri- ateness of reporting approaches, processes of reporting to the Board, reporting of legal and accounting developments to senior management, and exception reporting. Although these criteria may seem to be quite comprehensive, the “Internal Control and Financial Reporting” guidance did not include examples of how statements by company directors on internal finan- cial control should be made. However, the same guidance advises that the company statements should include an explanation of the steps taken by the company to:

■  ensure an appropriate control environment,

■  state the processes used to identify major business risks,

■ assess the information technology in place,

■  understand the major control procedures, and

■  explain the monitoring system used by the Board to check that the system is effective.

To summarize, directors of U.K.-based companies are responsible for establishing and maintaining appropriate internal control systems. As there is no general or standardized approach for doing so, judgments must be made not only to assess the anticipated benefits and costs of management information and of control procedures, but also in the control estimation approach itself. As a consequence, an appropriate way to help directors examine on a confidential basis their business’s level of internal control is to compare, or benchmark, their operations with other companies, whether these companies are competitors or not. In this way, directors can analyze where their internal control strengths and weaknesses are most significant so that action can be taken to es- tablish and maintain appropriate internal control systems. Rule-based artificial intelligence techniques have helped Deloitte & Touche clients to design and run applications in business areas where decision making has been relatively well structured and easily transferable into formalized rule-based models.

The fact that standard business procedures are frequently highly structured or semistructured has spawned the initial rush of successful rule-based applications. However, the situation is different when dealing with unstructured business domains such as internal control, where expertise is scarce, expensive, and difficult to formalize. There is still a need to support business decision making for internal control, as it is a problem domain not bounded by rules, although there are as many different cases of internal controls as there are companies. Any rule-based processing to tackle internal control evaluation would raise some doubt, as rules do not lend themselves to capturing tacit knowledge of volatile business domains dynamically and combining different experts’ views.

Most of the present business expertise in inter- nal control evaluation exists in the form of cases rather than procedures that can be more easily converted into rules. One means of approaching the problem of translating procedures would be a solution consisting of the provision of a case library of expertise. CBR is well suited for this approach for the reasons explained in the next section.

The Knowledge Management Solution

CBR is an appropriate approach to deal with internal control since experience drawn from specific business case studies is in most in- stances more valuable than generalized textbook knowledge. At the same time, internal control evaluation is a domain where there is a potential combinatorial explosion because of the existence of many features associated with each case of internal control.

By finding the case closest to a specific business under evaluation, CBR shows the key questions that lead to benchmarking the problem, rather than a battery of standard parameters that may have nothing to do with the problem. Accountants investigating adequacy of levels of internal controls rely more frequently on examples than rules, especially when the repository of knowledge lies in the informal domain. As there are no generally accepted and reliable rules for internal controls, accoun- tants often have to rely on hints, clues, or assumptions.

Until now, expertise in internal control evaluation has been developed by the continual confrontation of the accountant with many varied busi- ness cases, and the clues for evaluating internal controls lie hidden in large information bases. As there are often similarities in different business cases, if presented to the accountant, these similarities can help not only support but also corroborate judgment. In those in- stances, cases are often used to validate and even justify the experts’ views. In this way, a CBR approach can support a consistent level of business decisions. A CBR approach in internal control can also be most helpful since this problem domain evolves very rapidly as business patterns change continuously. CBR makes the process of acquiring internal control ex- amples more natural, and obtaining high-level rules of thumb or heuristic knowledge about the domain is made easier. Case-based in- put avoids the translation of auditing rules of thumb into inference mechanisms that may lead to inconsistencies or loss of tacit knowl- edge. Case-based input also allows accountants to relate to typical or atypical cases rather than to hypothetical models.

The CBR model allows business cases of internal controls to be deleted as they become obsolete, and fictitious cases may be added to complete the coverage of the problem domain. Using past illustrations of internal controls, business experts will, in most examples, prefer to refer to these cases by using idea association. Indeed, the confidence in the CBR application will tend to increase in such circumstances.

Expected Benefits

One of the main reasons for using CBR at Deloitte & Touche for busi- ness domains such as internal controls, and fraud detection in partic- ular, is that the case-based model explicitly combines searching with learning.5 Using CBR in internal control evaluation can give users ac- cess to deeper knowledge and more relevant reasoning about the prob- lem in the form of a data laboratory exercise. For example, in browsing a cluster tree discriminating between in- ternal control cases, the user observes the discriminators or nodes that are most information-rich, or meaning-rich.

These meaning-rich as- pects of a case-based approach may be crucial to the user for a more appropriate level of interaction, by which the user is encouraged to explore the problem domain until an appropriate solution is gener- ated from the search and learn processes. By recollecting past cases of internal control, reasoning can be directed because there is a compre- hensive path or trail laid out along which ideas and concepts natu- rally flow. In contrast to the result orientation of traditional rule- based approaches (where in most instances only a tracing facility is available), the case-based searching and learning approach has a critic-orientation emphasis. Both rule-based and CBR systems may contribute to increased consistency in business decision making in different ways: traditional systems have attempted to automate activities where business exper- tise is crucial, whereas CBR can be applied in business areas for which human intelligence needs to be augmented and amplified.

Expertise enhancement has been one of the major drivers behind the ControlSCAPE application designed by Deloitte & Touche. Learning about internal control is a crucial ingredient in the reasoning process, but often learning requires several iterations of problem solving and restructuring of business knowledge in the light of new experiences. Human problem solving in loosely structured busi- ness domains may falter when people must rely on memory to retrieve appropriate solved cases. This is especially true for experts whose heuristic reasoning depends on patterns of data embedded in past business cases. For these reasons, it also makes sense that ControlSCAPE could accelerate knowledge transfer, help staff share experiences, and also preserve knowledge gained in the corporate environment. These aspects are especially relevant to people dealing with unstructured business knowledge, since a large part of their tasks relies not only on objective information but also subjective interpretation of it.

It is in  this  context  that   Deloitte  &  Touche  decided  to   design ControlSCAPE either as a directing system (using internal control cases to provide the user with simple adapted solutions from past cases relevant to the case under scrutiny) or as an indicating system (giving the user an opportunity to discover knowledge from cases that are “neighboring” the problem). In this way, ControlSCAPE would emphasize accountants’ analogi- cal problem solving and as a consequence help them reach more in- formed decisions about appropriateness of systems of internal control. ControlSCAPE was designed to encourage accountants’ imitation (ap- plying solutions to the current problem by referring to past solved cases), opinion making (searching for a clue that could lead to a solu- tion to the problem), and insight (giving a greater understanding of the problem domain by scanning through pertinent cases).

Thus, the case-based analogical reasoning in internal control provides an op- portunity for the business user to justify and support his or her deci- sion when the domain is too complex or when there is a need for con- flict resolution, which could eventually cost the client dearly.

The Team

The team consisted of the partner in charge (Martyn Jones, National Audit Technical Partner for the U.K. firm) and a member of staff (Olivier Curet, Senior Manager), supported by several consultants. The product champions have had extensive experience with the use of CBR and have been a driving force in the U.K. firm behind the design, im- plementation, and evaluation of specific knowledge-based systems and especially case-based approaches to business problem domains.

These problem domains have included the detection of management fraud, the detection of transfer pricing strategies, the identification of invoice discounting strategies, and the evaluation of trade missions.

Implementation Plan

The first part of the methodology consisted of case feature definition. Deloitte & Touche had already designed a method called “ICAP” (Initial Case Acquisition Process) used during our previous CBR- related work for applications mentioned earlier. The role of ICAP was to construct a set of potential case descriptors by circulating a ques- tionnaire that collected key  features from the firm’s  top experts. Initially, the features suggested arose from past cases, which allowed accountants to input their knowledge in a less constrained way. The resulting set of features was then recirculated to permit the experts to change, amend, or delete any features they felt were inappropriate, and the process was repeated until the different experts agreed. The amended form was circulated again to all the experts who crafted the questions in the first place, until the final version was agreed (vali- dated).

This “semi-Delphic” process allowed the users and designers to agree on the features that should be used to characterize cases and also to decide the types of cases that should be collected. After the feature calibration was validated, ICAP made it necessary to collect further cases on the basis of the agreed set. The purpose of this “case stabilization” was to collect a sufficient number of cases to obtain an appropriate coverage of the problem domain. Issues such as the effects of case aggregation (for example, is there a target number of cases to collect?) and case duplication (for example, what should be done about redundant cases?) were tackled.

Thereafter, the reference case evolved with use over time, and the application was tested con- tinuously as it expanded. Once the ControlSCAPE case base was stabilized, it became the case library, and the application was ready for implementation. (The sys- tem architecture  is shown in Figure 6.1.) The most appropriate method of case retrieval was decided. This included deciding the rela- tive importance (or weights) of features in case retrievals and whether weight vectors should be prescribed or left open for users to choose.

The flexibility of querying the case library was also examined. Other issues examined included case adaptation, when a new case should be stored and by whom, who is responsible for ensuring that the system has been “trained,” what kind of user training is required, and who should be responsible for the continuous evaluation of the system.

The ControlSCAPE Development Group’s role was to coordinate the over- all process and collect cases.

Hardware and Software

We evaluated several CBR development tools and examined how our major   competitors  used  CBR  within  knowledge  management processes. Five of the six main accounting and consulting firms are known to use CBR. These are Deloitte Touche Tohmatsu (audit), Andersen Consulting (linking CBR and virtual reality), KPMG and PriceWaterhouseCoopers (help desks), and Coopers & Lybrand (risk and control).

Deloitte & Touche (U.K.) and  Coopers & Lybrand (Germany) used the ReMind CBR tool, while the other firms used eGain’s CBR tools.6 As part of the ControlSCAPE project, it was necessary to choose ei- ther to have a complete in-house system or to build an application with an existing CBR tool. The advantages of using an off-the-shelf tool allowed the ControlSCAPE Development Group to focus on the methodology, case collection, and subsequent customization to client requirements. Programming a full CBR application, including the cre- ation of retrieval algorithms and user interface, would have signifi- cantly increased the risks associated with the project (such as going over budget or over time). The functionality required by ControlSCAPE was the capacity to retrieve cases using advanced retrieval strategies (based on induction rather than  nearest neighbor), and the capacity to allow the fine- tuning of case representation (by defining symbolic values, for example).

ReMind had already been successfully used in the firm during the early 1990s for prototypes. It was felt that for working on a standalone basis, for a very specific business problem, and working with a cen- tralized case library, ReMind had the functionalities we were looking for despite its drawbacks. The system can run on a standard notebook computer.

Case Acquisition

During the ControlSCAPE case-base design phase, internal control cases were carefully defined and collected to ensure coverage of the business problem domain. To start with, the first part of the ICAP process was the result of a brainstorming session with several of the firm’s top experts in the audit field, mainly from U.K. and U.S. firms. Specific discriminators about internal controls emerged from this ex- ercise; and after several sessions over a few weeks, some specific ques- tions were repeated and patterns emerged when experts were asked to think about past cases.

At the end of this first process, the series of questions  that  had  been formulated  were clustered around  the Cadbury Report framework, including:

■  control environment,

■  identification and evaluation of risk,

■  monitoring and corrective action,

■  information and communication,

■  control procedures, and

■  other.

Structured interviews took place during the following part of the ICAP process. The selected audit experts were asked to fill in the questionnaire while thinking about past cases they had encountered, and to walk through it with the interviewer. Initially they were asked to talk about the general principles driving good or bad levels of internal con- trols, discern between several types of internal control environments, and relate these types to general audit principles.

After this process, the following five questions were asked:

1. Are the indicators of “good” or “bad” internal controls exhaus- tive? If not, please give an exhaustive list.

2. How do you find out about these “good” or “bad” internal con- trols? Directly, or through an intermediary or manager?

3. In general, what makes you happy that nothing unusual is go- ing on?

4. In general, what would alert you to types of unusualness?

5. Is there anything that is so universal an indicator of “good” or “bad” internal controls that it and it alone will cause you to re- think your approach to an audit?

Please list the indicators. It was also possible for interviewees to express their thoughts while completing the exercise. The process was set to last no longer than forty-five minutes and was conducted by individuals with little back- ground knowledge of internal controls: this way, an interviewer who had some knowledge of the domain could not lead the interviewee, or disagree with the interviewee’s comments during the interviews.

In this specific way, ICAP was used to define the criteria being used for each question and as a consequence to define more closely the case representation.

Case Representation

ControlSCAPE works on the basis of the interviewees’ perceptions of internal control matters, ranked from 0 (low) to 5 (high) using a mod- ified Likert scale. By representing and designing ControlSCAPE questions, it was dis- covered very early during the ICAP process that it was necessary to make a distinction on the questionnaire between the “true” and the “false” missing values. The true missing value (for example, N/A) is a value that is not available because it is not applicable to the case being collected. For example, a question refers to internal audit and there is no internal audit function.

The false missing value (for example, IK— insufficient knowledge) is used for a question that is applicable to the case, but the accountant does not know the answer or cannot remem- ber. For example, his or her investigations were not yet advanced enough to answer this question. The difference between the two is essential for two main reasons. First, it allows the discrimination between data that is not available but is still useful during the use of ControlSCAPE. Second, when the feed- back to clients is given, one of the first areas of concern may be to per- form further investigation for which the answers are IK.

As a conse- quence,  two  extra  missing value  categories were added  to  the questionnaire during the ICAP process, representing, respectively, not applicable and insufficient knowledge. It has been shown that experts are quite poor at weighting informa- tion accurately and that their answers to specific questions affect their measurement of other questions. Whenever experts give judgmental answers to soft issues, there is no way to split statistically the valid from the biased elements. This is why an overall evaluation field has been added to ControlSCAPE. This “heuristic link” could be statistically measured, but it would be difficult to  validate.

For these reasons ControlSCAPE does not try to explain possible correlations between subjective answers.

Case Retrieval

ControlSCAPE includes a full list of features on internal controls (more than 350 parameters for 200 cases as of May 1998). Figure 6.5 provides a representative list of case features.

Case Adaptation

ControlSCAPE does no case adaptation. The problem is that appro- priate CBR adaptation approaches depend on the purpose of the system and its desired outcome. Cases of internal control can be seen as being too instrumental and only flat descriptions or snapshots of past instances, the definitions or even contexts of which may no longer be relevant to any business. If all the data is quantitative, CBR and its adaptation process may be relatively straightforward. In contrast, it is far less easy to adapt business cases when the domain knowledge con- tains soft information, such as an expert’s judgments and perceptions, rather than hard, or factual, data. The generation of soft information-based business cases is used more to guide and suggest user reasoning and learning based on some relevant cases. If the cases contain mainly soft information, adaptation may be mainly user guided. In contrast, if the cases contain mainly fac- tual descriptions of past cases, they can be directly adapted to solve the present problem.

Case Retention and Maintenance

Maintenance issues include deciding when a case becomes obsolete, when new cases and/or features need to be added, and the criteria that dictate when to store a new case.

Only the case base administrator is authorized to maintain the case base. This greatly reduces the risks as- sociated with possible interference from other users who may input cases or delete previous ones unknowingly. Training has been given to other managers who can also operate the system when the adminis- trator is out of the office. All new cases that are investigated using ControlSCAPE for client assignment are input in the case base on a confidential basis. Only the senior manager or partner in charge of the application is authorized to request that new criteria be added to the application.

Interface Design

There was no specific interface design since the default interface of the ReMind tool was used. This is one advantage of using software that the firm already knew instead of programming and customizing a full application in-house. As the manager in charge of running the system knows the tool very well, it was felt that the interface did not need change, and efforts instead concentrated on case collection, process- ing, and output generation issues.

Testing

With regard to the evaluation phase, particular attention was given to both the accuracy of the case base (whether relevant cases are re- trieved) and usage (whether the correct decisions are reached on the basis of the cases  recovered).

The approach used for evaluating ControlSCAPE was the same as for previous applications that the firm had built, including the fraud detection system. The problem with evaluating CBR knowledge management appli- cations is related to the understanding that the validation of the ap- plication is more complex than for conventional systems. A CBR ap- plication is more difficult to evaluate because new cases are input on a continuous   basis  and  users’   expectations  change  with  time. Furthermore, the evaluation of such systems in a business organiza- tion is critical because members of  management  need to know whether the time devoted to the project and the financial investment have been worth it. A few methods have been designed for CBR evaluation, either after implementation  or during the development process. In our domain some business cases may be irrelevant to a particular end user, while different users may perceive the subjectivity inevitably included in cases in different ways. In effect, our CBR knowledge management systems contain layers of different experiences.

In some domains, features can encapsulate qualitative details, such as perceptions, understanding, and biases about specific problems. Although cases are not necessarily consistent with one another, they will make up a coherent encapsulation of the problem domain. One major aspect of CBR is that the case base is expanding all the time, so the results of searching the case base are time sensitive and user sensitive. All these factors influence the nature of the knowl- edge discovery process, and thus must be taken into account during evaluation. Since CBR solves problems by selecting similar problems or similar sequences of events, the business solutions generated may vary more because the cases used represent very different concrete business ex- periences. This is why a more holistic approach to the evaluation of ControlSCAPE was used, assessing both the accuracy of the system (that is, its reliability) and its effectiveness (its impact on the user and the organization). The accuracy approach to ControlSCAPE evaluation consisted of testing the number of successful hits (retrieving cases of the same type, on the scale from 1—seriously inadequate levels of control—to 7— world class). It was important to estimate the precision and noise when searching for and retrieving “appropriate” knowledge.

The precision of information retrieval has been considered as being the ratio of the number of items relevant to the user (hits), divided by the total num- ber of items retrieved. The noise of information can be considered as being the ratio of the number of items not relevant to the user (waste), divided by the total number of items retrieved.

Rollout and Benefits

Since ControlSCAPE was tested and validated, it was used in the London office. Initially it was applied to small-sized projects (mainly from the UK). After these few projects, no major amendments were requested.

Accountants discovered very early that ControlSCAPE had the following benefits:

■  The system enables any business control system to be measured on a scale from 1 to 7, taking the scales from the nearest neighbors. This benchmark is quite difficult to perform without ControlSCAPE.

■  ControlSCAPE facilitates internal and external benchmarking. It makes sense to benchmark among business units within the larger companies, and it also makes sense to benchmark any internal sys- tem with peer companies.

■  ControlSCAPE enhances judgments relating to quality of systems while identifying where further internal control inquiries need to be made, as well as identifying weaknesses.

■  ControlSCAPE can show where improvements in internal controls can be made by measuring the gap between the client’s level of con- trol and the “best in class.”

■  ControlSCAPE output facilitates the governance process by pro- viding succinct overview of strengths and weaknesses to the client company’s Board.

System Demonstration

The ControlSCAPE questionnaire is always completed to the fullest extent possible. The respondents’ first impressions are considered the most valuable. It is requested that in the first phases of opera- tion, parameters are neither deleted nor changed. It is advised that the ControlSCAPE  questionnaire  should  take about  forty-five minutes to complete if the respondents know the entity or group well. If several people come together to develop and answer shared views, more  time will be required  to  facilitate discussion and consensus. Every effort is always made to complete the questionnaire in one session. The ControlSCAPE questionnaire may be completed by the accountant as part of a client service engagement or new business ini- tiative, or may be made available to clients to complete their own as- sessment.

In situations where clients complete the questionnaire, re- sponses are reviewed to ensure completeness and responsiveness to the intended control parameters. In all cases, the client service partner re- views the questionnaire for reasonableness and completeness, espe- cially if there are different cases collected about the client’s different subsidiaries worldwide. In completing the questionnaire, it is important to provide back- ground information about the case (type of entity, size of turnover, etc.).

This information will enable comparisons to be made not only against the database as a whole but also against specific subsets and combinations within the database, including industry sector, size, na- ture of the entity, type of entity, or even geographic location. The iden- tities of the entities in the case base are always kept confidential. After the team of accountants and/or client’s senior management have answered the ControlSCAPE questionnaire, the responses are in- put for benchmarking. The ControlSCAPE output includes a nearest neighbor analysis and profile that indicate which questions and an- swers were weighed most heavily in determining the cases that the cur- rent case most closely resembles. This provides the client with an over- all  assessment of  the  internal  control  structure  (whether  it  is underdeveloped, adequate, well developed, progressive, etc.), sugges- tions for improvement, and a comparison against industry averages.

The typical ControlSCAPE deliverable document includes a bench- marking report (analysis of ten nearest neighbors); graphical display indicating where the company falls on the scale, from seriously inade- quate to world class; profiling of key parameters used for analysis; identification of areas of insufficient knowledge; and comparison against average under each of the five Cadbury headings.

Conclusion

ControlSCAPE has shown that CBR is an appropriate approach to business problem solving when the problem domain is unstructured and involves significant amounts of tacit knowledge. The main benefit of ControlSCAPE is the significant added value it gives to Deloitte & Touche clients. The ControlSCAPE techniques, resulting audit work, and discussions always help the client identify control performance gaps. Workshops with clients can then be organized by holding one or more sessions with the client’s staff to generate ideas on control per- formance opportunities. Part of these sessions can be used to identify the change drivers and business objectives and then help brainstorm with the client on the aspects of the system of control that are strong, and on where it can be improved. Potentials for improvement are al- ways detected. A second benchmark can be done as a follow-up a few months after the first benchmark to see if the ratings improve.