Knowledge Management in Strategic Alliances and Outsourcing
Posted December 21, 2012 by Bierce & Kenerson, P.C. · 
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Knowledge management has become a key driver in the design and sustainability of competitive global enterprises today. In knowledge management (“KM”), organizations define the purpose and meaning of information for the corporate mission, create, store and share information and establish tools and rules for internal and external use (and repurposing) in commerce. KM presents structural and contractual challenges for enterprise customers and their outsourcing service providers.
Uses of KM. Knowledge management is a basic tool for business process management (“BPM”). KM may include training tools (webinars, questionnaires, checklists, algorithms). KM can enable effective post-merger integration to two organizations by providing transparency into each other’s operations. KM can also be used to capture the implicit, contextual knowledge of a retiring generation of experienced workers. KM is applied in outsourcing, supply chain management (“SCM”) and business process management (“BPM”). Other applications include business continuity planning (“BCP”), disaster recovery (“DR”), audit and control for corporate governances and regulatory reporting.
What is Knowledge Management? Knowledge management (“KM”) represents the institutionalization of business knowledge derived from personal experience, and the continuous process improvement “on the shoulders of giants” by process designers. KM applies scenario analysis to predict the suitability for applying a pre-determined process. It is not ad hoc, but responds ad hoc to situational triggers. Components to any KM process or system include:
- Scenario Triggers: precursor avenues leading to and funneling a work flow;
- Inputs: the collection of relevant data needed to provide either the context for a work flow (such as criteria for initiating the work flow) or the actual processing of inputs;
- Business Rules: the business rules (and regulatory requirements), or algorithm, processing inputs and delivering outputs as the intended results of the required operation;
- Data Processing: the process of applying the business rules to the inputs after the scenario is triggered and delivering the outputs;
- Records Management: the process of storing information in searchable formats, which may include a thesaurus, searchable links, and clusters of key topics and multiple documents (“records”).
Technologies Used in KM. Virtually any digital technology can be used for KM. This includes databases, repositories, intranets (open wikis or closed), extranets, decision support systems, project management tools, time billing and accounting software, web conferencing and online and offline storage systems. With increasing mobility of computing devices and the use of social networks that can be used to diffuse information, and global cyber threats, KM poses cybersecurity risks to the enterprise.
Legal Issues in KM. Several fields of law govern KM at different phases of creation, sharing, storage, use and reuse. These legal fields cover issues in employment, intellectual property rights, trade secrets, corporate fiduciary duty, contractual restraints on competitive activities and related antitrust or competition law, privacy law, contractual rights on warranties and indemnification, and mergers and acquisitions. In international business, the laws of multiple countries or multiple legal systems can apply, creating conflicts of law that require careful analysis and design for implementing a KM system or KM-based relationships. Finally, governmental regulations can mandate the form of a KM system.
Employment Law. Employees and contractors are sources of knowledge, as they take their experience and adapt it to specific problems for resolution. Human resources departments must ensure that employees do not share knowledge that is subject to a non-disclosure agreement with a former employer or a customer.
Intellectual Property and Trade Secrets. In the field of business services, a service provider uses work flows that could infringe the patent of a competitor. Or it might use a trade secret for a purpose not permitted under a non-disclosure agreement. Or it might present the work product in a form that is confusingly similar to the work product of a competitor under the Lanham Act or principles of “trade dress.” KM tools and rules should include information about the sources and permitted uses of “knowledge” to avoid infringement litigation and to expand the scope of the organization’s proprietary (and thus competitive) operations. In strategic alliances (such as teaming agreements and joint ventures) and outsourcing, both parties need to protect their own “KM” so that neither the outsourcer nor the enterprise customer can enjoy unfair competitive advantage after the end of the alliance or outsourcing contract.
Governmental Regulation. KM has become a prime mandate of governments. The Enron bankruptcy spawned the Sarbanes-Oxley Act of 2002, forcing public companies to maintain “audit and control” procedures beyond the general “best practices” previously adopted under generally accepted accounting principles (“GAAP”). Under GAAP, Statement of Auditing Standards (“SAS”) No. 70 established procedures for auditors to verify that companies actually followed the procedures and work flows that they claimed to follow. SAS 70 has since morphed into another auditing principle (SSAE 16), with a reduced standard of care and risk of liability for the auditors. The Securities and Exchange Commission requires public companies to identify their vulnerabilities including risks of business continuity and processes for disaster recovery. The Dodd-Frank Consumer Financial Protection law requires covered banks and financial services companies to adopt hundreds of specific processes, under over 300 regulations, to protect against risks of structural damage to the economy.
Getting Value from KM. Managers can build enterprise value through KM tools and policies that promote increased efficiency, competitive positioning, transparency and accountability. For efficiency, a “capability maturity” model may be limited in focus by addressing only constant improvements through analysis of “lessons learned” and proactive process redesign. For competitive positioning, innovative, entrepreneurial managers can cast aside “inefficient” or complicated business models for new models based on new technologies.
Contract Clauses. Virtually every business exchange involves the sale of some knowledge. It can be embedded in a product, or it can be expressed as a means for using a product or consuming services. Every contract for services (including “managed services” / outsourcing) needs effective analysis, planning and implementation of rules governing knowledge management.
Thinking Ahead. KM principles are essential for any business. KM contract clauses help ensure that the business will survive, thrive and adapt.