Knowledge Management in Construction

Citation

Laurell Stenlund, K. (2005), "Knowledge Management in Construction", Journal of Human Resource Costing & Accounting, Vol. 9 No. 1, pp. 60-68. https://doi.org/10.1108/14013380510636702

Introduction

When talking about buildings and bridges, the first thing that comes to my mind is the advanced technology behind all these fantastic constructions. What secrets can we find underlying the construction of the pyramids, the Sydney Opera House and other amazing buildings and bridges (such as the Swedish Öresundsbron)? Thousands of years ago when the pyramids were built, they required people's handcrafts and manpower. Today, advanced equipment is a matter of course in construction. However, it is not enough to have manpower and advanced equipment, as there is a much more cumbersome issue to consider. How can a company maintain the knowledge developed within a construction project when the project team is disbanded at the end of a project and the parties involved move on to new projects? How can a company create new knowledge for a sustained competitive advantage?

In Knowledge Management in Construction, the editors – Chimay J. Anumba, Charles Egbu and Patricia Carrillo – have brought together 13 contributors from research and industry to show how managing construction knowledge can bring real benefits to organisations and projects in the construction industry. The book is structured around the concept of knowledge management (KM) and gives us many excellent examples of the importance of KM and how KM can be used and implemented in a project‐based industry such as construction.

In the introduction (Chapter 1) the editors present a useful summary of the different chapters in the book that gives a good first introduction to the field of KM. The chapters, written by different researchers and practitioners, consist of varying forms of critical and reflective approaches to knowledge discussions. Together with the three following chapters, a general background to the subject is presented as well as how it relates to the construction industry. The second part (Chapters 5‐8) addresses practical organisational aspects of KM. The chapters include a discussion of how to determine whether an organisation is ready for the implementation of KM and how firms can be prepared before implementing KM (Chapter 5). Furthermore, the chapters describe what kinds of tools and techniques organisations can adopt in the implementation of KM (Chapter 6). The importance of selecting the most appropriate tools and techniques in a given situation is highlighted and a structured framework (SeLEKT) is presented. The authors argue that the framework enables organisations to make an informed selection based on the knowledge dimensions of interest and their business needs and context. In the next chapter, the issues involved in cross‐projects are explored, such as the nature of construction projects (and teams), the characteristics of knowledge in a multi‐project environment and the role of individuals, project reviews, and contractual and organisational arrangements for knowledge transfer. A special focus on KM as a driver for innovation in an organisation is discussed in Chapter 8, where the authors argue that an organisation's ability to innovate, and its profitability, depends to a large extent on how well it manages its knowledge.

The third section of the book (Chapters 9‐12) is dedicated to addressing some of the difficult and cumbersome issues involved in managing knowledge in an organisation. These issues concern how to measure KM performance, how to develop a KM strategy, how to establish a corporate memory and how to build a culture of knowledge sharing in construction project teams.

In this review article I will look more closely at the nature of KM and its implications for the construction industry (the first part of the book) together with the difficulties of how to measure KM performance.

What is knowledge management in the construction industry?

The basic definitions of and fundamental concepts about knowledge and KM are introduced by Paul Quintas in Chapter 2. Knowledge has been discussed for centuries, from the ancient Greeks to Adam Smith and Alfred Marshal. Quintas quotes Marshal from 1972:

Capital consists in a great part of knowledge and organisation […] Knowledge is our most powerful engine of production.

Accordingly, the process of managing knowledge is not new. But it has been a process “unlabelled”. Because of the nature of human knowledge, KM processes have been discovered rather than invented. Much of the complexity of organisations can be traced to the tacit (or implicit) nature of human knowledge, the social nature of knowledge and the “stickiness” or context specificity of much knowledge. Quintas argues that it is important to take into account those knowledge processes that function and work well without the KM label.

The experiences from case studies of Honda, Matsushita and other firms in Nonaka and Takeuchi's influential and widely quoted book The Knowledge‐Creating Company (Nonaka and Takeuchi, 1995) is used by Quintas in his argument that these are descriptions of actual knowledge processes of knowledge sharing, knowledge combination and so on, and were identified post hoc as examples of how knowledge can be managed. From these case studies, the cultural differences became more obvious: in the West we tend to think about knowledge as a “thing” or commodity that can easily be moved around, managed and traded. Eastern traditions are more likely to emphasise the inseparability of what is known from the individual or groups that know it. From this perspective, knowledge is seen as a process rather than a “thing”.

Key drivers of KM

In the 1990s many KM initiatives and tools that emerged were less concerned with addressing real knowledge issues. This contributed to a focus on codified knowledge, which, according to Quintas, limits the scope to no more than information management.

A broader perspective on KM is suggested by Quintas in his discussion of the following six dimensions of key drivers of KM:

1. 1.

   valuing intangible assets, knowledge resources and capabilities;

2. 2.

   managing people and supporting communities of practice;

3. 3.

   supporting a culture of continuous learning;

4. 4.

   supporting knowledge creation and innovation;

5. 5.

   managing cross‐boundary knowledge processes, absorptive capacity; and

6. 6.

   use of technology to support knowledge processes.

These key drivers make us aware of pre‐existing knowledge processes. Perhaps the major benefit from raising the issue of knowledge is that it invites us to think differently about key organisational resources and processes, such as the generic processes of communication, learning and thought, without which human activity cannot function. Moreover, another layer of organisational processes can be identified through these key drivers, i.e. creating/generating/producing knowledge, sharing knowledge, sourcing knowledge, sense‐making, synthesising/transforming/combining knowledge, capturing/storing/classifying knowledge (as information), mapping knowledge or knowledge proxies, measuring knowledge or knowledge proxies, applying and reusing knowledge and managing knowledge processes across boundaries. However, Quintas argues, the use of these processes may not be possible to measure within a community of practice other than by its outputs. So, too, patents and copyrights may provide some measure of the capability for knowledge creation.

The approach to KM initiatives

In practice, firms approach their KM initiatives in different ways. According to Quintas, the majority of firms in the West give priority to the “capture” of employees' knowledge, exploitation of existing knowledge resources or assets, improved access to expertise (i.e. improved know‐how), transferring knowledge between projects, and building and mining knowledge stores. Thus, unfortunately, knowledge cannot be regarded as a commodity that is easy to manage, trade and share. Knowledge is created and applied through dynamic processes. Knowing is an active process, resulting from action and engagement (Cook and Brown, 1999). “Knowledge can no longer be pinned down to the heads of individuals and treated as a finished, stable product but is instead to be seen as a relational, transient product” (Araujo, 1998, p. 324, building on Lave, 1993, and Lave and Wenger, 1991). Much knowledge is experiential and known to the individuals involved in specific activities. Experiential knowledge may be difficult, if not impossible, to communicate to others – much of it remains tacit.

In the third chapter in the book Knowledge Management in Construction, Charles O. Egbu and Herbert S. Robinson discuss how the construction industry has, as other companies of today, become a knowledge‐intensive organisation. The industry provides more services today to its clients and customers.

In the context of construction, tacit knowledge includes estimating and tendering skills acquired over time through hands‐on experience of preparing bids, understanding the construction process, interaction with clients/customers and project team members in the construction supply chain, as well as understanding tender markets. The long tradition of apprenticeship schemes in the construction industry is responsible for producing various craftsmen who rely on their tacit knowledge to solve construction problems. This knowledge is reinforced and developed through shared experience by continuous interaction and learning from each other. The type of knowledge to be managed in construction is therefore influenced by a combination of client, end‐user and market characteristics. This type of tacit knowledge is experiential, judgmental, context‐specific and therefore difficult to codify and share. Explicit knowledge is stored as written documents or procedures. In the construction industry examples of this kind of knowledge are design codes of practices, performance specifications, drawings in paper‐based or electronic format and construction techniques, together with materials testing procedures, design sketches and images, 3D models and textbooks. Innovative construction requires highly flexible management procedures characterised by a higher utilisation of tacit knowledge to manage complex design and construction processes. There is a need of highly skilled individuals and competent teams (designers, suppliers and constructors) in the construction process. The need for people's basic knowledge and skills in standard construction must be complemented with creative people in innovative projects. To meet the need of development of design and construction processes, creating new knowledge and developing people's skills, much of the training and experience of construction professionals is based today on a balance between codified (explicit) knowledge and tacit knowledge.

Team stability has also a profound implication for knowledge creation and reuse. The repeated selection of new teams inhibits learning, innovation and the development of skilled and experienced teams (Egan, 1998). The best results come from the same people working together project after project (Bennett, 2000).

Structuring project knowledge

Egbu and Robinson suggest in the third chapter that the starting point for structuring construction project knowledge is a development of a knowledge map for locating explicit knowledge and for serving as pointers to holders of tacit knowledge. This knowledge map consists of multiple levels of detail regarding the processes, the products and the people. The items can be viewed as text, drawings, graphics, documents, directories, icons, symbols or models, which also serve as links to more detailed knowledge. The knowledge map serves as a continuously evolving project memory, forming a link between different knowledge sources, capturing and integrating new knowledge into the project knowledge base. It also enables construction project team members to learn from past and current projects through the navigation of information as well as the creation of new knowledge, by adding, refining and broadening the scope.

Developing and sharing knowledge

Egbu and Robinson also discuss the need for meeting the challenges of the knowledge economy and for improved competitiveness by further training and development of key skills. It is essential that knowledge‐intensive organisations have an efficient, motivated and competent workforce. In the construction industry, knowledge can be viewed as stocks of expertise. An organisation's stocks of expertise come from the flows in complex input‐output systems. Knowledge flows in through the hiring, training and purchasing of capital goods. Some kinds of knowledge get “manufactured internally” through research, invention and culture building. Knowledge flows out through staff departures, imitated routines and sales of capital goods. In the construction industry the supply chain is an important characteristic of the organisation. Communication between the people working in the supply chain and the intra‐ and inter‐organisational knowledge sharing through intranets and extranets facilitate collaborative working on specific projects. However, external knowledge sharing poses greater risks than internal sharing, raising complex issues such as confidentiality, reliability and copyright.

Egbu and Robinson ask whether organisations working together in networks (such as supply chains) are likely to spread and share best practices as well as the results of research and development. However, organisations would need to be mindful of adaptive efficiency and role boundary spanning when dealing with different types of organisational co‐operation and collaboration.

How can knowledge be valued and measured in a project‐based industry such as construction?

One of the cumbersome issues in knowledge management is how to measure and value knowledge. In chapter nine of Knowledge Management in Construction, Herbert S. Robinson, Patricia M. Carrillo, Chimay J. Anumba and Ahmed M. Al‐Ghassani discuss why firms should measure the performance of knowledge management and knowledge assets.

The authors quote “you cannot manage what you cannot measure”, and argue that this also applies to knowledge. The strongest argument for measuring the performance of knowledge assets and KM is to demonstrate its business benefits so that the resources and support necessary for a successful implementation can be provided. While most, if not all, knowledge‐based organisations recognise the value of knowledge, as well as the need to bring it to the centre stage, very limited progress has been made in measuring soft knowledge to supplement traditional financial information. There is growing evidence that non‐financial measures relating to intangibles or knowledge are becoming important to organisations, investors, shareholders, employees and other stakeholders (e.g. Bontis, 2000; Stewart, 1997; DiPiazza and Eccles, 2002).

Measuring stocks and flow

Two distinct aspects of KM need to be measured. The first relates to knowledge assets (stocks) and the second to KM projects, programmes or initiatives (flow) aimed at improving or increasing the value of knowledge assets (stocks). The knowledge stocks are, for example, the talents of people employed, the efficiency of the processes used, the nature of products and customer relationships. Referring to Bontis et al. (1999), “there is a positive relationship between the stocks of learning (knowledge) at all levels in an organisation and its business performance”. Investment in developing organisational competencies (knowledge stocks) may therefore be wasted if the flow of learning is obstructed, i.e. if there is no KM or it is not properly implemented. KM facilitates the flow of learning between knowledge stocks – individuals, groups, business process, customer relationships and products – and thereby increases the value of an organisation's knowledge assets.

Robinson et al. argue that measures for knowledge assets are seen as stocks of intellectual capital that focus on several main components – human, structural and customer capital. Human capital is the knowledge in a person's head, acquired mainly through education, training and experience. Structural capital is the knowledge embedded in business process, i.e. non‐human storehouses, including organisational manuals, procedures and databases. Customer capital refers to knowledge about products, marketing channels and customer relationships. Measures for KM focus on the expected outputs of KM interventions or initiatives relative to its inputs. A full evaluation involves a comparison of both the inputs and the outputs of KM interventions.

A variety of performance measures – metrics, economic and market value approaches – could be adopted to evaluate KM alternatives. According to Robinson et al., it is easier to compare performance using cost‐benefit analysis, in which measures of inputs and outputs are included or transformed to the same monetary units. This may also facilitate a comparison between business units of the same organisation or different organisations. However, where units of inputs and outputs are different and difficult to transform to the same units, other performance measures, such as cost‐utility and cost‐effectiveness measures, could be adopted.

Metrics, economic and market value

Metrics are input or output indicators used to monitor the performance of knowledge assets or KM programmes. Examples of input indicators are number of training days per employee, proportion of staff with professional qualifications or over two years' experience, and senior managers with experience on major projects. The output indicators measure the performance or the result of those actions, such as the number of defects after project completion, complaints from clients and cost and time overruns. Metrics can be single or composite, i.e. an aggregate of individual indicators into a single index such as the intellectual capital (IC) index. This approach is based on the assumption that there is a relationship or correlation between the indicators and business performance. Metrics incorporate both financial and non‐financial measures influencing business performance and are generally grouped into three categories:

1. 1.

   customer;

2. 2.

   structural; and

3. 3.

   human capital.

A number of application tools are underpinned by the metrics approach. Those include the Skandia Navigator (Edvinsson, 1997) and the Intangible Assets Monitor (Sveiby, 1997), as well as business performance measurement models such as the Balanced Scorecard by Kaplan and Norton (1996) and the Excellence Model (European Foundation for Quality Management, 1999). Robinson et al. argue that the limitations with those metrics are that they are often difficult to aggregate or combine into a single numeric measure to correlate with business performance. Comparison between business units or organisations can sometimes be difficult, if not meaningless, without a standard metric definition for each measure. Metrics do not always provide adequate information about performance to enable continuous improvement initiatives to be undertaken.

The economic approach goes beyond anticipating the benefits and recognises that the costs associated with KM are crucial and, according to Robinson et al., the objective is to assess whether the benefits exceed the costs. The cost and/or benefits could be one‐off, ongoing, up‐front or back‐end. The method is therefore useful in determining the likely returns on investment (ROI), internal rate of return (IRR), net present value (NPV) or payback period to help mangers determine the value of KM. Economic approaches could also involve the valuation of specific knowledge assets or components; for example, quantifying the economic value of people to an organisation where human capital comprises a significant proportion of organisational value, or other intangibles. The weighted sum of inputs in relation to the weighted sum of outputs, expressed in monetary values, utility values or other units of measurement, is an indicator of the measures of performance. A range of KM tools, i.e. techniques and technologies (presented in Chapter 6) can be used to support the implementation of KM strategies and initiatives. The IMPaKT Assessor (Robinson et al., 2002; Carrillo et al., 2003), the Benefits Tree and the Inclusive Value Methodology (Skyrme, 1998) are examples of application tools incorporating various techniques for quantification of the value of KM in the construction industry. Robinson et al. note that the limitations of the economic approach are shortcomings regarding the methodology and interpretation of the outcome. Whereas assessing the cost of KM may be relatively straightforward, the quantification of benefits is sometimes problematic, cumbersome and difficult. For example, in determining labour savings and savings on other expenditures such as printing, papers, telephone and travel costs, productivity increases may involve assumptions, some more plausible than others. Such methods, although useful in determining the value of KM, tend to rely extensively on “guestimates” or data that are sketchy or sometimes not available. The approach is often imprecise and therefore requires caution in the interpretation of the outcome, as the exact contribution of KM practices to the improvement of a particular aspect of business, concerning other factors, is not always certain.

The market value approach is “macro” in nature and based on the principle that the value of a company comes from its hard financial capital (physical and monetary assets) and soft knowledge or intellectual capital. Knowledge or intellectual capital should therefore explain the difference between the value assigned to an organisation by a buyer or the stock market in relation to its book market value. A fundamental criticism of the market value approach relates to the vagaries and volatility of the stock market, often responding to factors outside the control of companies and their management, according to Robinson et al.

According to Robinson et al., it is central to improving the value of KM programmes and knowledge assets in organisation. When an organisation progresses to a stage where implementation of KM is mature and well co‐ordinated, companies may require a robust measurement system. Still, this is one of the least developed areas of KM.

Criticism and appraisal

It is argued in the book that KM is one critical issue that firms in the construction industry need to take into account. Based on earlier research experiences, both by the contributors to the book and by other researchers, different methods and models are presented for implementing and following up the effects of KM.

The nature of knowledge and knowledge management is used to explain how knowledge is created within a company and between companies, which also is the starting point for all the contributors when discussing different issues of KM. However, the difficulties of developing performance measures related both to the knowledge stock in the company (the company's intangible assets or immaterial resources) and to the knowledge flow (the processes within and between companies aimed at improving or increasing the value of knowledge assets/stocks) could have been discussed in a clearer way. The methods and models explained in the book for performance measures have been developed in a different context. The application tools selected for KM and performance measures have been developed in a construction context. The reader should have this in mind when reading the book from a general KM perspective. However, this should not be a big problem as all the examples given in the book are related to the construction industry and could be useful even to other firms with similar conditions. The challenge to develop relevant performance measures for specific industries still remains, however.

Overall, there are valuable theoretical descriptions and explanations of how and why the concepts of managing knowledge are appropriate to the knowledge management processes that are put in place in the construction industry. I agree with Sir Michael Latham by quoting his words from the foreword of the book: “This book provides a practical guidance on how this (KM( can be done and I consider it essential reading for all participants in the construction process”.