Web-enabled knowledge sharing

Virtual communities in the financial industry

The demands facing companies operating in the financial sector are changing, while many organisations are struggling to fully realise the benefits knowledge management has to offer. Wido Bosch and Eric Feijen reveal how virtual communities can be used to help compensate for the shift in economic conditions, and describes the steps financial businesses should take to ensure their successful implementation.

The arguments for knowledge management

Recently, a study by the Institute of Financial Services has shown that companies in the financial industry are failing to fully realise the benefits of knowledge management. This survey, conducted among the top 200 banks and insurance companies, showed that only one third of the companies questioned have KM initiatives in place; in 37 per cent of the cases, no individual is responsible for KM; and that only 36 per cent of the companies with KM programmes have realised and implemented that programme within a two-year timeframe.

However, 90 per cent of employees in the financial industry endorse the need for knowledge management, and organisations are beginning to focus more and more on the management of knowledge. This increasing interest is caused by several factors:

At the moment, sharing and combining knowledge is a focus area of tool suppliers, offering more advanced possibilities with astonishing returns on investment;
Processes in the financial industry have become more knowledge intensive;
Professionals are scarce and life-time employment does not exist anymore;
Economic trends necessitate that organisations cut costs dramatically;
Non-financial industry companies have started to offer financial products as well.

The necessity of dealing with these factors has lead towards a paradigm shift in the way business is conducted. Previously, the environment in which companies, as well as employees, operated was stable for years. This lead to the continued success of large financial conglomerates in which lifetime employment was guaranteed, and external competitors were given no chance to succeed in the industry.

Technology push

The increasing interest in knowledge management was initially fostered by the information technology industry. Technically it is now possible to extract information from employees in order to share it with others, through the use, for example, of knowledge bases, case-based reasoning systems, business intelligence tools, groupware applications, decision support systems, expert systems, and so on. Tool vendors have positioned themselves as knowledge management solutions providers, offering a broad range of knowledge management-supporting tools.

Knowledge intensive processes

Processes have also become more knowledge intensive. The so-called half-life of products has decreased enormously. In the technical industry, for example, vendors like Microsoft and Intel introduce new technology before an existing product is fully developed; cash cows are rare. In the financial industry, we can see a similar trend. The focus now lies on attracting clients with new products and concepts. These products need to be introduced faster than the competition can manage, and, as such, time to market has decreased substantially.

Scarce employees

Only ten years ago, people had to send dozens of application forms to potential employers in the hope that they would be invited for a job interview. Nowadays, when an employer does not satisfy an employee’s demands, that employee can more easily move to another organisation. It is vital that an employer keeps the knowledge worker satisfied, by providing an environment in which he or she can move from one network to another, and is rewarded for the knowledge he or she provides in the organisation. People want to be rewarded for their added value, which stems from the contribution they can make in sharing their knowledge with others.

Cost-cutting environments

Organisations in the financial sector have to deal with increased pressure from the outside environment. Financial results are very important; witness the malaise in the financial markets and the disillusion affecting technology and telecom businesses. This leads towards a stronger focus on short-term benefits and, often, to large, company-wide cost-cutting programmes. Knowledge management programmes have to respond to these trends. The focus, for example, should be on purchasing contracts, or sharing best or better practices in order to gain more efficiency in a company’s core processes.

Fading boundaries

Another external threat is the fading of traditional boundaries in the financial industry. Companies like the Bank of Scotland and Ahold (a large Dutch-based grocery chain) are now offering financial products to the Dutch market, for example. Ahold is offering households the ability to save money when doing grocery shopping: with one click of a button, 10 per cent of the customer’s purchase value is saved to a separate deposit account.

Similarly, Eubos is an internet-based initiative launched by the Bank of Scotland. The company realised that arranging a mortgage is a complex process in the Netherlands, and therefore developed a programme offering mortgages at lower rates, through the internet, and combined with various discounts. A few years ago, this initiative would not have been possible.

How knowledge management initiatives are obstructed

Although KM is not new as a theoretical subject in business literature, a ‘sleeves up’ attitude and the development of best practices is fairly novel. Of course, this is not surprising. Most companies have developed in-depth knowledge and sophisticated models of management of classical production factors. This has strengthened organisational cultures and management styles in which ‘quantifiability’ has become of paramount importance. Yet knowledge management deals with the soft and intangible production factors and requires a different approach. Unfortunately, the saying ‘if you have a hammer, everything starts to look like a nail’ is particularly applicable to knowledge management. This is one of the reasons why ambitious KM initiatives often deteriorate into IT implementation projects that nobody really wants. Or, even worse, scepticism and hesitation prevents the launch of KM initiatives in the first place, and organisational inertia sets in. Accordingly, we have identified some user and management-related issues that need to be overcome.

Firstly, the user issues. The success of KM ultimately depends on its users and their enthusiasm and initiative. In practice, user indifference is the most common pitfall. Thus, users need to experience added value in their work and be (formally) rewarded for knowledge usage and contributions. At the moment, most employees in the financial industry are rewarded for attaining their (financial) targets, and not for sharing valuable knowledge. In fact, many people regard KM to be beyond their scope, and think of it as extra work. Fear is also a common problem. Some people stick to the paradigm ‘knowledge is power’ and refuse to participate actively and share experiences, ideas and insights. But knowledge kept to oneself quickly becomes useless. Only when you exchange knowledge with others can you be of influence. There is a need to accept that the sharing of knowledge is power.

Secondly, some important management issues can be identified. In their article in the Harvard Business Review (March 2001), Hansen and Von Oetinger described what they see as the next step in KM: the ‘T-shaped’ manager. This person is “a new kind of executive who breaks out of the traditional corporate hierarchy and freely shares ideas and expertise across the company, while remaining fiercely committed to business unit performance”. We believe this T-shaped manager should be regarded as a person who synthesises ‘soft’ knowledge and the traditional ‘quantifying’ approach. However, we also maintain that these people cannot be ‘made’. Many managers also fear that by sharing their knowledge and encouraging their employees to do so, they lose control of the flow of information and thereby their power. Perhaps the rise of this type of manager depends heavily on their role in KM activities (as laid out in their job description), reward structures, and strong boardroom support. Performance measurement needs particular attention.

The concept of virtual communities in the financial industry

Virtual communities can be thought of as a digital environment in which people gather to exchange knowledge, experiences and ideas relating to a common interest. Virtual communities have radically changed the nature of traditional ideas of communication within groups of people. They overcome time and place barriers, and synthesise the benefits of the codification (knowledge is made explicit in documents, databases, etc.) and personalisation (knowledge is shared through person-to-person interaction) approaches to managing knowledge.

Virtual communities are organic by nature; they are born, grow and eventually die. These processes are highly intertwined with, and reflect the development of, the social networks that use the virtual communities. These networks don’t necessarily have to follow organisational structures. In fact, they tend to encompass people from different (functional) departments at different echelons, and change in composition over time. A key characteristic of virtual communities is that they ‘mold’ themselves to the dynamics of these social networks. Thus, unlike traditional meetings, they don’t impose a rigid structure on the interaction in terms of subject (which topics are most important?), participants (who may/can participate?), location (which place is convenient for most people?) and time (what time is convenient for most people?).

Benefits of introducing virtual communities

The fact that virtual communities tear down organisational, time and place barriers, doesn’t mean that they will be immediately successful. It is equally possible to lose money and work in an inefficient manner when these barriers have been removed. When starting an initiative, it is important to consider the achievements and goals the community needs to fulfil. The benefits of virtual communities are likely to be found in the following areas:

Synergy of efficiency and effectiveness;
Cost reduction;
More revenue by cross-fertilisation (new products, new markets, new customers);
Higher job satisfaction;
More synergetic merger and acquisition activity.

Exchanging best or better practices will make employees more aware of processes performed in other parts of the organisation. Large financial conglomerates in particular can benefit from this. Internationally dispersed managers in the same line of business are able to learn from each other, while constant reinvention of the wheel is prevented. Incorporating this form of knowledge exchange in their way of doing business will lead to more efficient and effective processes and synergy. Thus virtual communities are perfect vehicles to facilitate the knowledge sharing activities of T-shaped managers.

An interesting aspect of communities is their ability to combine knowledge in organisations across borders, or even with suppliers or customers. Through this combination of knowledge, departments can gain new insights in the development of products and markets, and in securing new customers. Depending on the strategy and position a company is in, it can choose to implement virtual communities to cut costs or to develop new business (or, even better, both).

The changing paradigm of the way business is conducted has already been discussed, including the problems associated with retaining employees. One possible way to keep a knowledge worker happy is to provide incentives, based on their knowledge sharing and creating initiatives. Training, assisting and acting as a peer reviewer gives the employee a feeling of adding value for their colleagues, in turn leading to increased job satisfaction. And by providing an environment in which this is possible, the firm is offering another incentive for the worker to remain with the company.

The final benefit of virtual communities lies in their ability to ease the transition associated with mergers and acquisitions. In the financial industry, the slogan is ‘eat or be eaten’, but integration programmes do not always result in a stronger organisation, and the effects of former mergers can still be felt a long way down the line. Old cultures remain and people are often afraid to socialise and break down the barriers between them. By bringing these people together, based on their field of expertise and interest, these barriers can be overcome. At the same time, knowledge gaps in the new organisation will be quickly revealed, and the necessary knowledge developed to plug these holes.

Implementing a virtual community

Although virtual communities are based on a technological platform, because of their organic and social nature, critical success factors are also found in broader organisational and cultural dimensions. These dimensions are intimately related to each other, resulting in a complex web of interdependent issues. A multidisciplinary team is therefore needed, with technical, managerial and social skills, to make successful implementation possible. We have found that special attention should paid to the following items.

Tool selection

Implementing the right tool to do the job involves deep analysis of the expected size, usage, and growth of the community to prevent a mismatch between needed and actual tool properties. Also, the tool chosen should be easy to implement on the existing IT platform of the organisation (dedicated servers, available bandwidth, integration with knowledge bases or customer relationship management tools, and so on). Heavy involvement from the IT department is therefore necessary. Furthermore, to guarantee a high up-time ratio, a technical study should comprise a detailed investigation of the stability (average time between run time errors) and flexibility (easy maintenance, expansion and upgrading) of the software. Another important technology-related issue is the selection of the desired functionalities of the community, such as e-mail notification of new entries, anonymous access, chat options and so on. A clear understanding of management and user expectations and needs is therefore necessary.

Cultural dimension

The residing culture (the attitude and atmosphere) should support the transition of social to virtual, informal networks. To respect the latent and sometimes fragile structure of informal networks, there has to be an environment in which knowledge management initiatives are valued and encouraged. Clear management support and a strong managerial vision is therefore key. If these conditions are satisfied, and the value of knowledge management is clear, bottom-up community initiatives with sufficient social basis will emerge, or can be initiated in co-operation with enthusiastic employees.

However, a sophisticated technical and socio-cultural strategy is not sufficient. A strong business case also has to be built, wherein the strategic, practical and financial benefits to the organisation are thoroughly examined. A clear statement of purpose is vital to make this possible. It is important to make a distinction between innovation, efficiency and risk avoidance as a primary goal. Furthermore, to encourage people to use the community, it is worth adding a clause to their job descriptions, stating that people are expected to dedicate a certain percentage of their time to the community and other knowledge management activities. Also, to provide the users with rich and cutting edge content, a moderation plan and team has to be formulated. This team should be responsible of attracting and retaining users. Early wins in terms of, for example, cost savings, reduction of workload and increased job satisfaction should be communicated throughout the organisation to attract new users, create as sense of success and serve as a source of inspiration for other community initiatives.

Conclusions

In this era of knowledge intensification and global competition, we believe virtual communities are excellent enablers of knowledge sharing and creation within and between organisations, to the point that they can become a key source of competitive advantage in the financial industry. However, organisations often fail in successfully implementing knowledge management programmes, usually due to a failure to integrate them fully with business activities, and the fact that KM is seen as an additional ‘chore’ rather than a core process.

It has to be understood that virtual communities are a means to an end, and that critical success factors lie mainly in the wider organisational culture. An open mind is required, which is sometimes difficult to achieve in a high-pressure atmosphere with an emphasis on quantitative targets. It is therefore important to consider what a community will bring to its users and the business as a whole before jumping right in. Try to facilitate bottom-up thinking and create a knowledge sharing atmosphere instead of forcing KM solutions upon the organisation. Adding value with virtual communities can only be achieved through the active participation of the main source of all knowledge within a firm: the employees.

Wido Bosch is consultant at Turner Solutions. He can be contacted at: wbosch@turnersolutions.nl

Erik Feijen is a knowledge management consultant at Turner Solutions. He can be contacted at: efeijen@turnersolutions.nl