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The knowledge marketplace

This article appears in the issue November 1998 [Volume 7, Issue 12]

Knowledge management is typically viewed as something you do inside a company. Looking at the flow of knowledge, and understanding where knowledge is bottled up and unavailable are issues companies examine as they develop internal knowledge audits.

But knowledge has real, often calculable value outside the company, in the marketplace. With the rapid increase in business-to-business Internet use, the outside marketplace is where knowledge management meets E-commerce. The intersection combines the adaptive nature of networks and the tendency of markets to create exchanges wherever there are "haves" and "have nots." The result is a different kind of knowledge flow and knowledge management that has a real impact on a company's performance in the marketplace. Here's an example.

Knowledge in the distribution channel

Bay Networks (www.baynetworks.com) manufactures internetworking equipment such as routers, switches and hubs. Because its products can be complicated pieces of hardware, installed in even more complex networks, Bay Networks has long relied on selling through a channel of distributors and VARs. With rivals, like Cisco, that sell directly to the customer, Bay Networks counts on its channel to provide competitive advantage.

It is important to Bay Networks to look at the distribution channel in terms of knowledge flows and bottlenecks. Knowledge about the actual products, about support issues, about upcoming releases, resides principally with Bay Networks itself. On the other hand, knowledge about the customer's problems resides with the customer. In the course of a sale, some of that customer problem knowledge is transferred to the reseller; rarely does it transfer back up the chain to Bay Networks.

The distribution channel has perfected a kind of division of labor and responsibility: The manufacturer worries about the product, the reseller worries about the customer and the distributor connects the two. The isolation of different responsibilities enables Bay Networks to extend more broadly into more markets, reaching smaller buyers than it could do by selling directly. But the division of responsibility comes at a price: Different, important kinds of knowledge tend to be bottled up at different ends of the chain.

The emergence of the Internet and E-commerce as important factors in the market for hubs and routers provided Bay Networks with an opportunity to fix some of that knowledge imbalance. It could put more product and support information on its Web site. It could make those knowledge assets more readily available to distributors and resellers; it could even make the information available to customers and prospects. Doing so, however, would cause two problems--both of which are predictable to a company that thinks in terms of knowledge flows in the marketplace.

The first problem--the one that is easier to see--is that the knowledge flow is just one way. Bay Networks would provide distributors, resellers and customers with knowledge about products, but would receive no customer information in return. That would solve only half the knowledge bottleneck problem, and would be bad business: Since knowledge has value, it makes more sense to think in terms of "exchange" rather than "free distribution."

The second problem is subtler and provides insight into the way knowledge works in markets. Because there always was a knowledge bottleneck surrounding product and technical support information, distributors and resellers have made access to such information part of the value they add. They open up the bottleneck in different, innovative ways. In some cases, over time, they got to know engineers at Bay Networks who could give them a hand with a call. Or they may have kept their own logs of problem reports. In any case, they had actually built their businesses around the inefficient knowledge flows in the old distribution system. Product and support knowledge was hard to obtain and therefore had value and could be part of the distributor's or reseller's business offer.

The market's ability to reward intermediaries who can provide scarce knowledge is a good thing. Markets abhor static knowledge; the more valuable the knowledge, the greater the pressure to move it. Customers get their hubs and routers fixed; the world is a better place.

But what would happen if Bay Networks suddenly made all the product and support information freely available on the Internet? To the extent that they had built businesses around helping Bay Networks and its customers by serving as product knowledge intermediaries, distributors and resellers would be in trouble. That would be bad for them, and for Bay Networks' plan to use its strong distribution channel as a competitive tool against Cisco.

Fortunately, Bay Networks analyzed those knowledge bottlenecks and flows upfront. Its response was to couple the increased availability of product and support information on its Web site with increased training for distributors and resellers to help them be more effective in pre-sales problem solving, rather than in post-sales customer support.

The company also devised an innovative approach to the knowledge trade of customer information for product information. It has created a "Product Configurator" on its Web site that embodies the rules for building a product order (e.g., "The System 5000 chassis requires one of the three following power supplies" or "If you order the System 5000 chassis you must also order the model 5110 Supervisory Module").

The customer goes directly to the Bay Networks site and uses the Configurator to build a list of all the components required for a specific installation. That gives Bay Networks the kind of direct information about customer requirements that had previously been bottled up at the reseller end of the distribution chain. In return, distributors and resellers not only receive Bay Networks' superior product configuration expertise, they obtain prequalified leads, an important asset to sales.


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