There is always much discussion about the role of KM, marketing and other so called support functions in traditional organizations/knowledge intensive industries, and how they impact firm performance and profitability. I highlight knowledge intensive industries as now the OECD classify the health industry as part of this group and the fitness industry is closely related. Those providing health and fitness related services can be classified as knowledge workers as the ‘product’ delivered is in the main the knowledge (both tacit and codified) that they deliver to customers. Managing knowledge workers then requires a different mind set as the intellectual capital of the firm walks out every night a facility closes its doors. It seems only a few years ago that senior executives had to be convinced to allow all staff to have internet access! That seems ridiculous now but then so is the idea that KM and marketing are functions that can be relegated to back office when it is in fact knowledge that the firm actually sells. It is also interesting to note the relationship between KM and marketing. There has been very little research on this issue. In some of the anecdotal conversations I’ve had with professionals, many have thought that knowledge is the internal domain of the firm that has nothing to do with clients whilst marketing, as usual, was about sales/promotion and hence wasn’t related to KM.
However, research sheds some light on this issue. Jenny Darroch and Rod McNaughton published a paper in the European Journal of Marketing (2003) that is the only study I am aware of that attempts to map the space of KM and marketing and their impact on innovation. The research is very interesting, but first a quick definition of terms:
- KM – ‘a process that creates or locates knowledge and manages the sharing, dissemination and use of knowledge within the organization. When knowledge is used, learning takes place, which in turn, improves the stock of knowledge available to the firm’ (Darrach and McNaughton, 2001).
- Marketing (as I mean it) which is a market orientation – ‘market orientation is the organization wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organization wide responsiveness to it’ (Kohli and Jaworski,1990)…and
- ‘a business is market oriented when its culture is systematically and entirely committed to the continuous creation of superior customer value’ (Slater and Narver,1995).
Now, take a close look at the marketing definition. It is both a culture and set of behaviors that generates and shares market based information (about clients, competitors, and the environment). What you can actually see is an overlap in the KM and marketing domains since marketing is, at least in part, about the generation and sharing of knowledge about the market. From the KM definition, knowledge used about marketing would mean that learning has taken place about delivering greater value to clients. This seems intuitive but since most senior executives need convincing that KM and marketing are beneficial, the insight here is quite profound. In the study cited above (Darroch and McNaughton, 2003), the authors found that those firms with both a strong knowledge orientation (KO) and market orientation (MO) outperformed other firms in terms of both innovation and financial measures. The authors concluded that a MO was actually a sub set of a proper KO and led to superior performance.
So how does this play out in real life? The figure below identifies the relationship between KO, MO and performance. The research cited above, and in fact, over 200 studies show a similar linkage. MO and KO both influence innovation and impact firm performance directly. These factors have been shown to explain 30-50% of the variance in performance between firms. KM and marketing should not be considered back office or support functions, they should be considered front and centre as the key drivers of firm performance. Whilst we should be concerned about causation vs correlation and the Halo Effect, the interrelationships are still helpful.
What this highlights has been apparent long before Covid, apparent in other ‘black swan’ events such as the 2008 financial crisis. During times of crisis, the majority of firms cut back on ‘marketing’ as they conflate marketing with promotion. This hollows out marketing capability from a value perspective making it even harder for the organization to take advantage of any recovery in the economy. The other problem is the role that marketing actually plays in the strategic direction of a company. Most marketing people do not have a seat at the C level and are pigeon holed into tactical marketing activities such as producing brochures or other collaterals. This is a sure fire way for the voice of the customer to be mitigated in the strategy process. The status of KM is even worse. Whilst you may not need a dedicated KM person (and most firms do not have one), you do need a KM strategy and process. It is not an accident that leading knowledge intensive firms have dedicated internal practices for KM (see for example KM at McKinsey https://www.thecasecentre.org/main/products/view?id=75981 or KM and AI insight by Deloitte here).
Knowledge based strategies need cultures that have a strong market and knowledge orientation. This means that culture is no longer some mystical hard to grasp concept. It is something which is both operational and concrete. We know what a high performing culture looks like – we just need to actually start doing. Strategy is action, not declaration!
Strategy & Competitiveness 