Case study
Constructing internal knowledge markets: considerations from mini cases

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Abstract

Knowledge management mechanisms in organizations are widespread and range from those that are highly technology focused to those with a more social flavor. However, not much attention has been given in the literature to economic based approaches. In this article we explore the notion of devising internal knowledge markets. We assert that the internal knowledge market is an ideal platform that integrates technological and social aspects of the knowledge management problem. We draw on lessons learnt from mini-cases conducted at several organizations and the current economic literature to inform our discussion. We outline several issues one needs to bear in mind while devising the internal knowledge market. With the exception of a few peculiarities, the internal knowledge market is subject to many of the same caveats one faces while building traditional physical or electronic markets (Kambil and van Heck, 2002; Shaprio and Varian, 1999, Malone et al., 1987; Economides, 1996). The internal knowledge market is to the 21st century organizational knowledge management what the campfire was to the pre-historic storytellers: a place for all organizational and cultural knowledge to be preserved and promulgated.

Introduction

Knowledge Management—that elusive organizational problematic—continues to receive the refining attentions of management practitioners and scholars alike. These “attentions”—mechanisms as well as methodologies—range from those promoting technological imperatives (e.g., artificial intelligence based computing mechanisms to automate the generation of explicit knowledge) to those promoting a more socially intensive imperative (e.g., mentoring, storytelling, and other sociological means). The truth of the matter is: each of these imperatives succeeds in chipping away at the knowledge management “problematic”; each fails, however, to provide a comprehensive approach to the knowledge management problematic. We suggest that there exists a large common ground between the technological and sociological imperatives of an organization's knowledge management development: the internal knowledge market.

The following insights have been amalgamated from conducting “mini-cases” on knowledge management efforts with several firms. We also researched the traditional literatures on market-based systems from economics to guide some of our thinking. The insights presented here, were gathered as part of a larger case study projects on how could firms effectively leverage their knowledge resources using various social and technological mechanisms. This case study hence, attempts to illustrate lessons learnt and key obstacles in development of knowledge markets in organizations. Our rationale here, in presenting over-arching testimonies rather than focusing on individual organizations is guided by the fact that such mechanisms are recent enough that we found similarities in organizations that were interested in the phenomena of knowledge markets. Put another way, we would like to present a case study about case studies on creation of internal knowledge markets. We stage our case study using the notion of games. Every game has players, rules, scores, etc. In the development of an internal knowledge market—the game is getting the players (buyers and sellers) to play by the rules, i.e. share knowledge and develop new knowledge effectively and efficiently.

The internal knowledge market is critical for bringing technological and organizational forces to bear cohesively and succinctly. For instance, an internal knowledge market can be established using technological infrastructure such as setting up an electronic auction site, while organizational and social aspects can incorporate how an entity buys, prices, exchanges, and values knowledge. As purported by many, unless employees in an organization are rewarded either implicitly or explicitly they are less likely to share their know-how (Desouza, 2003). A market mechanism provides various options for pricing knowledge, which can be used to reward employees. In fact, the internal knowledge market is to 21st century organizational knowledge management what the campfire was to pre-historic storytellers: a place for all organizational and cultural knowledge to be preserved and promulgated.

This paper elaborates on some of the critical determinants of developing internal knowledge markets.

Section snippets

Defining the components of internal knowledge markets

A market can be defined as a collection of buyers and sellers who interact to determine the price of a product or set of products. The main components of an internal knowledge market are: the players (buyers and sellers), rules (governance of interactions), and space (area where buyers and sellers collect). A succinct way one can define a market is by using the analogy of games: “A market is the pre-defined (rules) logical space in which buyers and sellers play to win”.

Buyers and sellers

Buyers and sellers can be collectively called the “players” in a market. Internal knowledge markets require both buyers and sellers to be agents of the same organization. A player can switch roles between being a buyer and seller at any point in time or with any transaction. An agent can also be human, machine, or a combination of the two. For example, with the advances in distributed artificial intelligence based computing, many organizations have intelligent agents deployed for the purposes

Rules

A market sets the rules on how buyers and sellers will interact. These are defined a priori and determine the exchange and pricing mechanisms. A markets exchange mechanism should address two questions: “What goods will be brought and sold?” and “How will the goods be paid for?” To a large extent only codified knowledge can be bought and sold. It is very difficult though not impossible to devise a market for un-codified knowledge. Carl Shapiro and Hal R. Varian in Information Rules use the term

Space

Electronic markets can be considered akin to traditional markets with the only difference being that their space is logical rather than physical. Examples of these can be found on the Internet at sites such as www.ebay.com or www.amazon.com. They are not constrained by geographical barriers as they operate in cyberspace (Malone, Yates, & Benjamin, 1987). Consequently, electronic internal knowledge markets represent a logical place within an organization where members can buy and sell knowledge.

Building a successful knowledge market

We draw these guidelines from primary and secondary sources. Primary sources include our experience with setting up or experimenting with knowledge markets. Secondary sources include work that has been published in the economic literatures on determinants of market structure and behavior. We have chosen to discuss the four biggest concerns faced by the organizations we have interacted with.

Market of lemons

Of critical concern in devising internal knowledge markets, is to attend to the issue, of market of lemons as postulated by the Nobel laureate George Akerlof. Akerlof studied the used cars marketplace, and was curious as to why they sold at a substantial discount as compared to the price of new car. He asserted that the buyers of new-cars do not know if their car is a lemon—car with defects. While the buyer can hire a mechanic or conduct a test of the vehicle to ensure its quality this is a

Chicken-and-egg predicament

For a market to exist two imperatives are essential. Something of value must be traded and there needs to be enough liquidity. Liquidity can be considered as a function of number of players involved in the market. The notion of “positive externality” in a network is salient here. A market exhibits network externalities or network effects, i.e. its value to a player is dependent on how many other players are participating in the network (Economides, 1996).

In setting up knowledge markets in

Black markets

Black markets also called underground or illegal markets pose several problems to the legitimate counterparts. For instance, for years the entertainment industry faced stiff competition from black markets, which sold pirated copies of their products at significantly lower cost. To a large extent, this problem has been curtailed via new copyright laws and developments in technology protection such as passwords, digital rights management, etc.

Knowledge is costly to produce but cheap to reproduce,

Advertising strategies

Unlike the sale of physical goods such as clothes, shoes, etc. which can be inspected prior to purchase without loss of value, knowledge objects are “experience goods”. Consumers must experience it to gauge its value. Moreover, putting knowledge objects on display reduces its value close to zero. For example, if one is allowed to view a working paper, then what is the need to purchase it? There is probably no need, as the value has already been received through it being on display. Hence, how

Internal knowledge markets for today; for tomorrow

With the recent development of pervasive, ubiquitous, and mobile computing facilities, knowledge markets should become real-time accessible. It will no longer be necessary for employees to access markets through their office or home-office sites, rather they will be able to access markets on the go. Hence, this will add more traffic to these markets and make them more valuable to the organization as a whole. In addition, research in authentication and trust building mechanisms such as higher

Kevin Desouza is a research associate at the Center for Research in Information Management, at the Department of Information and Decision Sciences of the University of Illinois at Chicago. He has authored Managing Knowledge with Artificial Intelligence (Quorum Books), and over 20 refereed articles either published or forthcoming in journals such as the Communications of the ACM, Information & Management, Industrial Management, Technology Forecasting and Social Change, International Journal of

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Kevin Desouza is a research associate at the Center for Research in Information Management, at the Department of Information and Decision Sciences of the University of Illinois at Chicago. He has authored Managing Knowledge with Artificial Intelligence (Quorum Books), and over 20 refereed articles either published or forthcoming in journals such as the Communications of the ACM, Information & Management, Industrial Management, Technology Forecasting and Social Change, International Journal of Healthcare Technology and Management, International Journal of Information Management, Government Information Quarterly, Journal of Contingencies and Crisis Management, IT Professional, Competitive Intelligence Review, Business Horizons, Emergence, Journal of Knowledge Management, Knowledge Process and Management, and European Management Journal. His research interests include knowledge management, national security, and military intelligence. He is currently completing his doctoral work at the University of Illinois at Chicago. He is a principal researcher at Paradigm Inc., (NFP).

Yukika Awazu is a credit administrator at the Chicago branch of UFJ Bank. She received her M.A in economics and M.B.A degrees from the University of Illinois at Chicago. Her research interests include knowledge management, virtual work, and economics of information systems. She has several papers under review at various management journals and has presented papers at several conferences such as INFORMS, PICMET and AMCIS.

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