Finding a profitable niche for biotechnology within health care and agriculture is tricky enough if you are the CEO of a large, well-established, and well-funded company, but spare a thought for the beleaguered CEO of a younger business. His/her job is made much harder by investors' demands for multi-fold returns on investments, the inability to offer the salaries needed to attract the best employees, and the management of a commodity that is intangible, volatile, and difficult-to-handle—knowledge.

Biotechnology is undeniably part of the knowledge economy. Young companies, in particular, may have few tangible assets other than their specific and detailed knowledge of a given area of technology. Yet despite its fundamental importance, knowledge often appears to be a highly undervalued asset for many biotechnology companies.

A recent survey of UK life science companies indicated that although many recognized the importance of effective knowledge management, few considered that a deficiency in knowledge management would pose a business risk (see Henderson p. BE23). Ironically, younger companies were prone to holding this attitude, perhaps because at this stage of their development other matters (e.g., financing and staffing) seem more pressing. However, even when managers did recognize the risk, they invested very little time in knowledge management1.

The tip of the iceberg

Knowledge clearly creates corporate value—perhaps most tangibly and clearly through the patent system. A granted patent converts intellectual activity into a clearly defined commercial opportunity and thus tradable value.

Furthermore, patents are one of the few things that can't walk out of the door! The biotechnology sector is in constant flux, and personnel and management migrate from company to company. Companies recognize that a free flow of information from the company can undermine its technical or commercial position, and they apply sensible restrictions to the efflux of knowledge. Contractual restrictions, such as the inclusion of non-compete or confidentiality clauses in employment agreements, may prevent competitors learning too much about a company's vital information, but they cannot prevent the information lost with departing staff. Companies can enforce policies limiting commenting to the media, and may permit only designated (senior) staff to talk in detail with potential collaborators on research programs and commercial activities.

However, knowledge management in a biotechnology company must encompass more than patent filings and staff “gagging”. A company's information and knowledge assets arise from many quarters—both internally and externally. For example, an increasing reliance on outsourcing and data sharing (particularly in genomics) means that much of the potential knowledge resources are generated outside a company. However, whether from internal or externally generated data, knowledge and information is held initially by individuals and not the body corporate.

Knowledge harnessed

The end product of good knowledge management procedures is “harnessed” knowledge—knowledge that can be readily put to use on behalf of all relevant members of the company (and its clients). “Harnessed” knowledge is held within an organization, but can be mobilized even after the originator has departed. Patents are one good example, or a highly cross-referenced database of expert advisors, or a searchable manual of specific laboratory protocols.

Then there is “unheld” knowledge—information that a company does not currently possess. Unheld knowledge assets could be subdivided into those that are known to be held (or harnessed) elsewhere (e.g., a patent owned by others) and those that are, in essence, unknown (e.g., well-kept trade secrets or unexplored technical avenues). Unheld knowledge should not simply be regarded as a black box. Companies should make a considerable effort to try to define the knowledge that they lack, first so that they can demonstrate awareness of their shortcomings, and second, so that they can embark on a strategy for remedying them.

Somewhere between harnessed and unheld knowledge lies “unharnessed” knowledge. Unharnessed knowledge exists temporarily somewhere within a company, but its value is diminished because it has neither been shared with relevant personnel nor lodged with the company. For example, unharnessed knowledge can sit with the uncommunicative junior researcher whose insight holds the key to understanding an important metabolic pathway, and with the self-centered senior executive whose wealth of negotiating tips and tricks are not shared with her deal-building staff.

The balance of knowledge management requirements changes as a company develops. In the startup phase, the few founding staff are concentrating primarily on R&D, and informal exchange of information ensures that knowledge is disseminated throughout the organization. However, small companies have only a few “information miners”, and may lack sufficient market or competitor intelligence to adjust their commercial or research strategy appropriately. The coherence and compactness of an early-stage firm makes it relatively easy to disseminate knowledge among relevant employees. By the same token, however, a small company does not have the resources to try to fill its knowledge gaps. A small company, therefore, will find it relatively easy to “harness” most of the knowledge it has, but the large amount of “unheld” knowledge still represents a significant risk.

Late-stage companies may have more knowledge-gathering agents, but because of their size often have difficulty mobilizing that knowledge within the organization. Segmentation of functions and more rigid definitions of responsibility can act as barriers to internal information flow. Unless appropriate knowledge management systems are in place, a larger company runs the risk of losing coherence. Collectively, the company's employees will be able to reduce the amount of unheld knowledge, but if that intelligence rests only with particular individuals or within departments, then the company has failed to harness it optimally.

Negative knowledge

One of the most readily overlooked parts of a company's knowledge assets is “negative knowledge”—a concept wholly familiar to most scientists. Science proceeds, at least according to Popperian theory, on the basis of accumulated negative knowledge: Experiments are designed to disprove various alternative or competing lines of thought. Theories that stand up to such experimental rigor represent “the current understanding” of the subject under consideration. In biotechnology companies, the same principles are applied with a level of stringency that is necessary to make commercial decisions. Once a company embarks on its decided path—to take a compound into animal testing or to seek financing in Asian markets, for instance—the negative knowledge that underpins its decision may be forgotten. Indeed, subsequent decisions may be taken on the basis of different parameters.

Biotechnology companies are reasonably good at projecting their “visions” and “strategies” to the outside world. They identify, share, disseminate (or restrict as necessary) the knowledge needed to drive their business forward. They invest time and money in filing patents to protect this knowledge, helping to chart their progress to success. These are all manifestations of a company's “positive knowledge”.

However, much of corporate endeavor—like human endeavor in general—progresses empirically. To either side of the well-lit path to corporate success are the false trails and beaten paths tried but not taken. This “negative knowledge” accumulates not only during R&D but also in manufacturing and commercial interactions. A company with an effective knowledge management process will be able to build a permanent body of awareness of “negative knowledge”—those approaches that didn't work out as hoped or anticipated. Insight gleaned from early disappointments is as valuable as the rare moments of success: each product launched is a survivor among thousands of failed new chemical entities; and for each headline-making pharmaceutical deal, there are many rebuffs. Thus, there is every reason for a company both to retain those hard lessons within its corporate memory, and to withhold those lessons from competitors pursuing a similar approach.

Elements of knowledge management

One measure of a company's ability to manage knowledge is the alacrity with which it identifies and pursues “unheld” knowledge, and the efficiency with which it converts “unharnessed” into “harnessed” knowledge.

In a company that has its knowledge management systems under control, “unharnessed” knowledge has only a fleeting existence—during that brief period before the new research finding or commercial tidbit (previously “unheld” knowledge) becomes “harnessed” for the company's benefit. Inadequate knowledge management results in short-lived “unharnessed” knowledge becoming “unheld” knowledge, and remaining in this intellectual “purgatory” before being rediscovered at a much later date.

The first step in instituting effective knowledge management procedures has to be the recognition by senior management that knowledge does not simply just flow unbidden into or around organizations, any more than money does. A company's CEO or chief financial officer is charged with the task (among others) of identifying cash needs and actively seeking ways of supplying them. The knowledge systems in the company should operate in much the same way.

Just as a company would draw up a budget by discussing the financial needs of its various function, so it should establish information and knowledge needs through a formal process that involves departmental and group heads as well as the senior management. That process defines not only what knowledge is needed and who should endeavor to garner it, but also who needs to be informed subsequently. That definition will lead to a description of a knowledge management system, almost certainly intranet-based, that both helps fulfill individual information needs and in effect monitors the company's collective knowledge store.

That process of defining the information needs will help employees understand better their role in the knowledge machine that is the company they work for. For instance, researchers understand that the results of their experiments are important to the company. However, if they have come from academic backgrounds, they may be less clear on what they can say about their own work at scientific meetings or what might be of interest in other people's presentations. A company's management can clarify these definitions, and provide, through the knowledge management system, a reporting outlet that will channel information around the organization.

Clearly, much of the information generated in a company is not needed by all employees. Information flows need to be filtered so that raw data from every microtiter plate well or the notes from the day's sales calls do not obscure more important messages.

A knowledge management system does not have be burdensome: indeed, if it is, it will not be used. The system will also encompass natural hierarchical information flows. Research staff will naturally inform their group leaders of progress and significant developments; sales and marketing staff speak with their supervisors about new leads. But a knowledge management system will help ensure that that occurs consistently. It will also contain triggers and alerting mechanisms that draw out information that might not otherwise be forthcoming.

Equally importantly, a knowledge management system needs to have an element of self-sustainability. Management can urge or incentivize employees to use the knowledge management apparatus, but the greatest encouragement will arise when an employee finds something in it that is useful or vital to him or her.

Knowledge management may not be at the top of most companies' lists of business risks, but deficiencies in knowledge management erode the performance of biotechnology companies' distinguishing assets—their intellectual engines. In essence, then, the ideal knowledge management system for a biotechnology company needs to combine the properties of a black hole with those of a small sun: it draws information and knowledge toward it but then re-emits it in appropriate beneficent doses in a variety of directions.