Petroleum industry leaking intellectual capital to other businesses

Why a producer's intellectual capital is worth 72% of company

Jan 1st, 2000
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Exploration, well construction, and reservoir management functions now merge together under a "managed knowledge" umbrella.
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"The significant problems we face cannot be solved at the same level of thinking we were when we created them." This Albert Einstein quote referred to the accumulation and use of knowledge. Significant problems require re-framing or thinking about them differently. These significant problems occur as culture, new technologies, evolving business processes, and an emphasis on relationships and knowledge creation transform simple business problems into complex business dilemmas.

Knowledge management takes us to this required new level of thinking. Technologies and processes alone can offer short-term competitive advantages, but these are easily copied and even improved upon by competitors. The creation and sharing of knowledge offers the only sustainable advantage.

Concept not new

Knowledge management is not a new phenomenon. In fact, knowledge sharing, is centuries old. During medieval times, knowledge was passed from master to apprentice in a slow, sometimes painful manner. Within more recent times business methodologies, such as total quality management (TQM), business process re-engineering (BPR) and teamwork, all experienced limited success but were merely sophisticated steps along an evolutionary process. Today knowledge exchange must keep pace with the explosion of new knowledge and is magnified by the pervasive use of information technology.

A review of business literature indicates there are as many definitions of knowledge management as there are consultants, academic theorists, and companies. The term "management" is easy enough to understand, but knowledge is rather slippery to define. Our definition of knowledge is taken from Laurence Prusak and Thomas Davenport writings in "Working Knowledge":

"Knowledge is a fluid mix of framed values, contextual information, and expert insight that provides a framework for evaluating and incorporating new experiences and information.

It originates, and is applied in the minds of "knowers." In organizations, it often becomes embedded not only in documents or repositories, but also in organizational routines, processes, practices, and norms."

Iconoclastic thinkers have argued that "knowledge" is what the individual carries inside his brain. You don't "manage" it, and you certainly don't "extract" it for business purposes. Rather, you provide an environment or ecology where knowledge can grow.

Knowledge can be categorized as either "explicit" or "tacit." Explicit knowledge is stored within or on inanimate containers such as books, manuals, databases, notes, even walls. These are processes, procedures, and experiences that have been written down, recorded or catalogued in some fashion. Explicit knowledge is sometimes called reference knowledge. Tacit knowledge is contained by a single person or a group of people, "knowers" if you will. It is a combination of experience, judgement, and intuition that has not been recorded. Other names for tacit knowledge are "grayware" and "wetware."

Simply put, knowledge management is the ability to create and access knowledge. It is about connections. Knowledge management demands that technology and processes be installed, but even more importantly, that a culture be grown. In its purest form, knowledge management makes the migration of employees beneficial to the company's intellectual capital, providing opportunities for the vast experience of migrating employees to be shared.

Knowledge management relies on the melding of three elements: process, technology and culture:

  • Process: Why are processes so important to us, and a cornerstone of knowledge management? Processes define the steps we take to reach decisions. In the case of oil and gas exploration and production organizations, these decisions usually entail significant resource allocations.

Mitigating risk in decision-making demands rich sources of industry and corporate knowledge. This means it is imperative to carefully analyze business processes - they are portals to that knowledge. Process analysis indicates where decisions are made, what technology is needed, what functional boundaries are permeated, who creates knowledge, where knowledge is used and where to measure success. Successful companies have a thorough understanding of their business processes and the knowledge surrounding the processes, which make them nimble enough to thrive during the continual onslaught of change.

  • Technology: Technology is a primary "enabler" for the knowledge management revolution. High bandwidth linkages, the ascendance of open and integrated architectures, and rapid proliferation of e-business on the World-Wide Web, have propelled us at breakneck speed.

Instantaneous communications have created the opportunities for people around the world to come together in global forums and virtual teams to create and share knowledge. Search engines can scour mountains of text in a blink, returning not just an answer, but often more questions. Technology alone, however, cannot lift the corporation above its competitors.

  • Culture: Culture is recognized as the most difficult component of knowledge management. Perhaps the term "management" is the culprit, because one cannot manage a person's desire to share what they know. Culture, like a garden, must be given the proper environment and nurtured to grow.

Historically, the energy industry has rewarded its employees for stockpiling knowledge reserves. This is based on a zero sum mentality and a finite view of the value knowledge holds. Knowledge is not a finite entity, but will continue to be created with the right mixture of environment, experiences, values, insight, and judgement. Knowledge, by its very nature, has to evolve or it becomes outdated and merely opinion.

The company culture must value and reward the exchange of knowledge. People must be clearly recognized as the primary source of new knowledge and the bearers of current knowledge. Creating a knowledge-rich environment within a company, demands redefining policies, reward systems, potentially even the corporate structure.

A successful knowledge management implementation requires cultivators of change at all levels of the organization. This includes not just executive sponsorship, but also individual contributors who understand and appreciate the value of this change to themselves and the organization.

Intellectual capital

The market value of each person is greatly determined by a combination of the knowledge the person contains and creates. Each company's intellectual capital is the accumulation of its employee's knowledge. The market value of a company is determined in large part by the intellectual capital, as perceived by the investing public. A recent article (Knowledge Management magazine) states that in 1997, Exxon's intellectual capital was valued at 72% of the company's perceived worth; DuPont's was valued at 84%; and Coca-Cola's was an incredible 96%.

The intellectual capital of the oil industry continues to leak into other industries at an alarming rate. The industry must find a way to slow the leak, that is, to preserve and grow its intellectual capital, if it is to remain competitive for investment dollars. Each organization can start by refining business processes, exploiting enabling technology, and most importantly, cultivating an environment that promotes the creation, collection, and sharing of knowledge by each of its employees.

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