HOW TO IMPROVE BUSINESS PERFORMANCE BASED ON KNOWLEDGE MANAGEMENT IN LOGISTICS

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1 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 companies 2 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 ( ) 2 Logistics company a company which line of business is to provide logistics services to other organizations -106-

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 ( ) -107-

3 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 -108-

4 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 ( ) -109-

5 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

6 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

7 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

8 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

9 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. References [1] ARMSTRONG, M. BARON, A.: Managing performance. Performance management in action. 2 nd edition. CIPD Publishing: ISBN [2] ARMSTRONG, M.: Performance management. Key strategies and practical guidelines. 3 rd edition. Kogan Page: ISBN [3] Awad, E.M. GHAZIRI, H.M.: Knowledge Management. Pearson Education India: ISBN [4] COLLISON, CH. PARCEL, G. Knowledge management. Computer Press: ISBN [5] Gudehus, T.: Der Einfluß des Menschen auf die Leistungsfähigkeit von Logistiksystemen; Proc. 12. Deutscher Materialfluss-Kongress, VDI-Berichte 1744, VDI Verlag, Düsseldorf (2003), [6] HAVRANOVÁ, A.: Why could economic crisis be right time for performance management system implementation. In: Journal of Information, Control and Management Systems. Vol No. 1 [7] MAJERČÁK, P. MAJERČÁKOVÁ, E.: Balanced Scorecard time to increasing Business Performance. In: Scientific Journal on Transport and Logistics Vol. 2 [8] MILLER, S.: Key Performance Indicator Logistics in the Supply Chain. Available: ( ) -114-

10 [9] Neumann, G. TOMÉ, E.: Knowledge Management and Logistics: An Empirical Evaluation. Available: ( ) [10] SOVIAR, J. ZÁVODSKÁ, A. Knowledge and its creation the case of introducing product to the market. In Verslas: Teorija ir praktika - Business: Theory and Practice, (4): ISSN print / ISSN online. [11] TRUNEČEK, J. Management znalostí. C.H.Beck: ISBN [12] VODÁK, J. - GABRYŠOVÁ, M. - SOVIAR, J.: Balanced Scorecard, strategy maps and business unit alignment. In: In: Scientific Journal on Transport and Logistics Vol. 2 [13] 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, Žilina [email protected] Ing. Lenka Kocifajová FRI Žilinská univerzita v Žiline Univerzitná 8215/1, Žilina [email protected] -115-