1. No category

HOW TO IMPROVE BUSINESS PERFORMANCE
BASED ON KNOWLEDGE MANAGEMENT IN
LOGISTICS
Katarína PÚČKOVÁ, Lenka KOCIFAJOVÁ
1
Introduction
Since current business environment is marked by economic crisis, the question of
organizational performance improvement is of rapidly increasing importance. This
article reflects on ways how to improve organizational performance based on
Knowledge Management in business logistics. One definition of business logistics
speaks of having the right item in the right quantity at the right time at the right place
for the right price in the right condition to the right customer. Business logistics
incorporates all industry sectors. The main targets of logistics can be divided into
performance related and cost related targets.1 Professional knowledge of logistics
processes can establish vital base for Knowledge management.
Logistics companies2 as well as other organizations at the market have to deal
with the task of identifying and analyzing hidden potential in order to ensure future
growth. Since there exists a wide range of different methods and approaches in the
field of improving performance, the chosen option has to take into consideration every
feature incident to logistics company´s processes.
2
Business Performance Management in general
In scientific literature and articles, the term performance can be defined as the
ability to achieve set goals and assess investments in business activities (this definition
is rather future oriented) or it can be defined as the measure of the results achieved
(this definition is rather past oriented). Therefore, performance is still an abstract
concept and hence it has to be represented by specific and measureable indicators.
Guidance for this purpose can be found in the concept of Performance Management
and its various frameworks such as Balanced Scorecard, Performance Prism or
1
http://abakinfotech.com/Softwares-logistic-management-system.html (10.01.2013)
Logistics company – a company which line of business is to provide logistics services to
other organizations
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2
Performance Pyramid model. Performance Management can be seen from these points
of view:
 Performance of a company: performance management as a holistic managerial
tool of managing the current level of performance of the company.
 Performance of a process: performance management as measuring and
improving processes.
 Performance of an employee: performance management as a HRM process.
Performance Management is the process of assessing progress toward achieving
predetermined goals. The main purpose of Performance Management is to link
individual objectives and organizational objectives and bring about that individuals
obey important worth for company. Additionally, Performance Management tries to
develop skills of people to achieve their capability to satisfy their ambitiousness and
also increase profit of the company. (Havranová, 2009)
According to Armstrong and Baron (Armstrong, Baron, 2005), Performance
Management is both a strategic and an integrated approach to delivering successful
results in organizations by improving the performance and developing the capabilities
of teams and individuals. The term Performance Management gained its popularity in
early 1980’s when total quality management programs received utmost importance for
achievement of superior standards and quality performance.
Performance Management includes on-going steps toward achieving excellence
in performance. Beginning with managers, supervisors, and employees who work
together to develop job goals and responsibilities, communicate candidly throughout
the year, and discuss and assess performance on an annual basis. The performance
management process helps to insure that employees have the opportunity to strive to
better their job performance.3
Aim of Business Performance Management
The overall aim of Business Performance Management is to establish a highperformance culture in which individuals and teams take responsibility for the
continuous improvement of business processes and for their own skills and
contributions within a framework provided by effective leadership. Its key purpose is
to focus people on doing the right thing by achieving goal clarity. (Armstrong, 2006)
The result of managing performance is increased organizational effectiveness and
efficiency which consequently leads into the improvement of the ability of the
company to deliver goods or services.
3
http://hrg.stanford.edu/Performance.html (11.01.2013)
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Ways of improving Business Performance
Generally, an achievement of measurable and sustainable improvement of
company performance can be reached by focusing on these fundamental four areas People, Processes, Technology and Innovations. As can be seen at the picture, these
areas are interconnected and they influence each other.
Fig. 1 Four areas of improvement of Business Performance
There is no way how to achieve high performance of the company without
required employees´ work performance. As every employee contributes by his or her
work to successful achievement of organizational goals, an employee work
performance significantly influences performance of the company and subsequently its
turnover and competitiveness at the market. The way how to improve performance via
people is through motivation, motivating and employee satisfaction. Performance
improvement in processes is mostly realized on the basis of various improvement
activities such as Six Sigma, Lean Management or Lean Logistics, TQM, Just-In-Time
and many others. Powerful processes are fundamental for successful logistics
companies. Technology as a mean of managing performance is inevitable, but it itself
does not secure the success of the whole managerial effort. Technogy has to be in
connection with knowledge of employees and has to support strategic goals.
Innovations and organizational changes are key in the effort of performance
improvement and increasing since every new implemented idea requires certain
changes in processes or procedures.
2.1 Business Performance Management in logistics
Business Performance Management (BPM or Corporate Performance
Management, CPM) as a systematic process for improving organizational performance
by developing the performance of individuals and teams, is a mean of getting better
results from the company, teams and individuals by understanding and managing
performance within an agreed framework of planned goals, standards and competence
requirements. To apply this in every logistics company requires involving certain
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metrics and indicators that are typical for this industry, such as indicators relating to
time (the time to deal with customs; the average time to complete a typical shipping
transaction) and indicators relating to cost (transportation cost, fuel cost, warehousing
cost). (Miller, 2011)
It is essential to have established an effective concept of Business Performance
Management in logistics. Top managers and logistics specialists should recognize
opportunities for improvement in all logistics processes and prepare document in order
to pursue key performance indicators of logistics processes as well as of other
organizational processes of the company. Information provided from realization of this
concept (which are transformed into knowledge through Knowledge management) and
visibility lead into customer quality improvements, cost reduction initiatives, improved
productivity and supported accountability.4
3
Knowledge management as a way of improving business performance
Knowledge management means thinking outside the boundaries of current
practice, products, services and organizations. The new and unpredictable business
environment puts a premium on innovation and creativity much more so than it has in
the past. This explains the chapter title – working smarter, not harder. It is “obsoleting
what you know before other know it is obsolete and profit by creating the challenges
and opportunities other have not thought about.” (Awad, Ghaziri, 2008)
Knowledge management provides this process. It's not just about creating
encyclopedias, which includes everything that anyone has ever known. Knowledge
management is more about watching those who know and developing company culture
and technology that causes them to speak. (Collinson, Parcel, 2005)
To put it simply, it is the effective linking between those who know with those
who need to know, and converting personal knowledge to the knowledge of the
company. (Truneček, 2004)
Knowledge management is a hybrid discipline, not so much the science but
rather a skill. Knowledge management concerns all organizational functions, including
marketing, management, accounting and logistics.
Knowledge management combines three important components: processes,
people and technology. Processes mean learning and organizational development. The
result of these processes is higher level of innovations from knowledge sharing. People
4
http://www.armstronglc.com/caseStudy/60062-logistics-performance-management
(11.01.2013)
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mean the connection of people who have the knowledge and are willing to share it and
receive feedback. Technology means information technology systems and technology
infrastructure, which allows sharing knowledge. (Collinson, Parcel, 2005)
These three components are also used in logistics. Processes mean learning and
development of logistics (the creation of conditions for sharing knowledge in
logistics). People mean the cooperation of people, who work or have worked in
logistics, which have the knowledge and are willing to share it. Technology means
using technology which facilitates sharing knowledge of employees in logistics
processes.
Fig. 2 Model of achieving competitiveness (modified by Collinson, Parcel, 2005)
Model shows achieving competitiveness by using of knowledge in the company.
This model can be helpful in knowledge sharing in logistics processes as well as other
crucial business processes. According to this model, knowledge of the company is
created in a company knowledge culture which includes the cycle of continuous
learning. Continuous learning is learning before, during and after every process in the
company.
The process of learning “before” means acquisition of knowledge before the start
of each process and acquisition of knowledge from solved problems in the company.
Employees must gather all the available knowledge about the problem in the company.
The process of learning “during” means learning from your own experience and
the experience of others who, at the same time, are solving the same or similar
problem.
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The process of learning “after” means a retrospective look at the solved
problems. Learning from what was successful and what was failed. (Collinson, Parcel,
2005)
Throughout this process the knowledge is made. For the company it is not
important only to create knowledge, but also to record and share knowledge among all
employees. The company knowledge culture creates an environment for working with
the knowledge and it is connecting those who know with those who need to know. It
should involve all employees and prepare an environment in which the employees are
not afraid to share their knowledge.
Company knowledge culture works due to three components: people, processes
and technology (described in the previous section).
All knowledge of the company forms knowledge base. This knowledge base
contains models of problems solving. Using these models accelerates work and
improves the performance of employees and of the company as well.
Creating basic company documents such as vision, mission and philosophy must
take knowledge into account. These documents are intended to help to create an
environment to work with the knowledge and to involve all employees from cleaners
to top managers.
Vision and philosophy are the basis for determination of the company strategy
and objectives. In this process, knowledge must be present, respectively designed rules
to work with knowledge must be present.
There is the possibility to create (“start”) knowledge management, which mission
is to create the process of finding, collecting, organizing, filtering and presenting
information and knowledge which are improving knowledge of employees in a special
area of interest. This allows the company to develop and manage processes based on
leadership.
For the process of knowledge creation information from within the company
(provided their company knowledge culture) are important and also information from
its environment. Knowledge is always created in the interaction with the environment
and it is valid only in this environment. Therefore, the company should establish
procedures for gathering information from the external environment.
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4
Knowledge management impact on a logistics company
As in companies and the society in general, knowledge has been widely
recognized and accepted as a strategic resource in the area of logistics (defined as the
planning, execution and control of the movement and placement of people and goods
and of the supporting activities within a system organized to achieve specific
objectives). (Neumann, Tomé, 2005)
 Supply chain operates successfully does not only depend on the intensity and
quality of materials and information flows in a supplier-customer relation.
Generally recognized, this is also heavily affected by the kind and quality of
collaboration between human resources involved in it on both sides of the
partnership based on knowledge, understanding and trust.
 To support logistics planning, there is a permanently increasing number and
variety of methods and software tools. Unfortunately, they quite often
dominate the planning person and prevent him or her from creative problem
solving instead of purposefully giving personalized support. Companies have
to give space to people and their knowledge.
 Team building to master complex problems in logistics planning and operation
can be successful only if the team consists of the right mix of knowledge,
experience and competence stakeholders adequate to the problem to be solved.
Within those well-balanced teams a range of individual strengths are
combined to overcome a range of individual weaknesses for jointly better
performing at a higher level
It is essential not to focus on the introduction of knowledge management
technology and integration of software tools for storing and retrieving knowledge and
information into a company’s setting only (Gudehus 2003), but to put the human
resources driving the company’s performance back into the center of gravity and to try
to give them that kind and amount of support which is needed in a particular situation.
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Fig. 3 Knowledge Management in logistics
In this model, the basic components of Knowledge management, people and
technology, remain unchanged. Processes are devided into leaning processes and
logistics processes.
Learning processes mean learning and organizational development. Companies
are not able to achieve their long-term objectives solely using the current technologies
and abilities. Strong competitive environment requires permanent increase of their
potential to create value. In connection with the learning and growth perspective this
means human capital (knowledge), information and organizational capital as
supporting pillars of the strategy. (Vodák, Gabryšová, Soviar, 2012)
Logistics processes mean the process of purchasing, supply, storage, traffic and
transportation. Objectives of logistics processes are to ensure right amount of the right
product at the right place and time in the right quality and price.
Important role is played by the information from other business units, suppliers,
customers and other stakeholders. This information influences quality of employees’
work. It should be provided with regard to their focus and power. (Majerčák,
Majerčáková, 2012) Information has to transform into knowledge through Knowledge
management components (people, technology and learning processes). This
knowledge is the input into the logistics processes.
5
Conclusion
For every logistics company (as well as for every company with logistics
processes) are processes essential. These processes have to be excellently managed in
order to provide maximum customer value as well as other stakeholders’ value. This
requirement can be carried out by Performance Management concept in partnership
with Knowledge management as an essential part of process management.
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Relevant information and experience generate knowledge. To implement strategy
of Knowledge management, companies must change their vision. This new vision is
supposed to be the leading frame for every employee and should contribute to their
motivation to create innovative ideas and solve problems creatively. This process
improves business performance. (Soviar, Závodská, 2011)
Practical implication of Knowledge management is mainly knowledge sharing
(consequence: better decision-making process, less mistakes and far more satisfied
customers). Business Performance Management focuses on identification of key
measurement and indicators in relation with business strategy and goals (consequence:
it is known what and how to measure). Employees are more engaged and there is
better teamwork among all business units of the company, capturing and processing of
information across diverse business units and information systems is simpler.
Acknowledgements
This paper was partially supported by the Slovak scientific grant VEGA
1/0992/11 and VEGA No 1/0888/13.
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[13] http://www.armstronglc.com/caseStudy/60062-logistics-performance-management
Resumé:
This paper deals with topic of improving the performance of the logistics
company. The topic is viewed from the point of Business Performance Management
and Knowledge management. The main idea is to point at the situation when
knowledge is essential part of managerial effort to improve performance of the
company through strategic and complex concept of Business Performance
Management.
Key words:
Business Performance Management, Knowledge Management, knowledge in
logistics, performance in logistics, Logistics Company
Ing. Katarína Púčková
FRI Žilinská univerzita v Žiline
Univerzitná 8215/1, 010 01 Žilina
e-mail: [email protected]
Ing. Lenka Kocifajová
FRI Žilinská univerzita v Žiline
Univerzitná 8215/1, 010 01 Žilina
e-mail: [email protected]
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