Knowledge Management in the Automobile Industry

Knowledge Systems at Daimler AG

By Ashraf Abdo, Melanie Pittumbur and Niklas Kolbe

Universit de Lorraine, 06/11/2014
PERCCOM

Contents
1 Introduction ........................................................................................................................ 2
2 Knowledge management in the automobile industry ........................................................... 2
2.1 Importance of knowledge management ....................................................................... 3
2.2 Knowledge management needs ................................................................................... 4
2.3 Main implementation strategies.................................................................................... 5
3 Knowledge management at Daimler AG ............................................................................. 5
3.1 Knowledge discovery systems ..................................................................................... 5
3.1.1 Knowledge Discovery in Databases ...................................................................... 6
3.1.2 CRISP-DM............................................................................................................. 6
3.1.3 KDD-applications developed by Daimler ................................................................ 6
3.2 Knowledge sharing systems......................................................................................... 6
3.2.1 Daimler AG Tech Clubs ......................................................................................... 6
3.2.2 Daimler EBOK ....................................................................................................... 7
3.2.3 Other initiatives of Daimler in Knowledge Sharing systems ................................... 7
3.3 Knowledge capture systems ........................................................................................ 8
3.3.1 Learning Bays Method in Daimler .......................................................................... 8
3.4 Knowledge application systems ................................................................................... 8
3.4.1 Cased-based reasoning system for KDD projects.................................................. 8
3.4.2 Other knowledge application systems...................................................................10
4 Performance benefits of knowledge management .............................................................10
Bibliography .........................................................................................................................12

1 Introduction
According to Britannica Encyclopedia, Automotive industry is: all those companies and
activities involved in the manufacture of motor vehicles, including most components, such as
engines and bodies, but excluding tires, batteries, and fuel.
The International Organization of Motor Vehicle Manufacturers or (OICA) stated that the
global vehicles production worldwide reached in 2013 87,299,993 vehicles (OICA O. , 2013
Production Statistics). This number means that the automotive market is very huge and
important market globally.
Except at the times of the economic crisis in 2008, the automotive market has always
witnessed a fast growth. For example, the following numbers show the growth in demand for
vehicles globally in the past four years:

2009 to 2010 +26%

2010 to 2011 +3.1%
2011 to 2012 +5.3%
2012 to 2013 +3.7% (OICA O. , Vehicles Production Statistics, 2014)

Automobile sector is one of the key segments of the modern economy having extensive
forward and backward linkages with other key segments of the economy. That forces the
reaction of automotive industry on market changes to be very flexible.
The automobile industry is a major innovator and the ongoing rapid technological changes
affect the automotive industry in many aspects. These changes varies from the
advancements of source of energy used to power vehicles, the increase of implementing ICT
tools and embedded systems in modern vehicles , the advancements in techniques used in
production lines and assembly, state of the art modeling and simulation tools and many
others factors.
For example, Auto market witnessed recently introducing different type of fully electric, hybrid
or even hydrogen powered car which meant that in order for companies to stay competitive,
they have to introduce and adopt technologies fast. Because consumers, as well as different
regions of the world, favour different technologies, automakers are developing a range of
automobiles.
The top five countries which lead the automotive industry in terms of production numbers are
China, the United States, Japan, Germany and South Korea (OICA O. , 2013 Production
Statistics). Whereas the top five production leader companies are Toyota, General Motors,
Volkswagen, Hyundai and Ford (OICA, 2013).

2 Knowledge management in the automobile industry

Over the past decades, knowledge management has become one of the primary concerns in
managerial practice for establishing a sustainable competitive edge of a company. It has
even been argued that for modern businesses, the most important resource has become the
collective knowledge residing inside the minds of an organisations employees, customers
and vendors (Becerra-Fernandez & Sabherwal, 2010).

When considering all the industrial sectors, there is no doubt that the automotive industry is
the most striking example when referring to the complexity of management processes that
drive the need for a knowledge management system. It was always widely recognised that
the knowledge possessed by staff at every level of the production line was important for the
final productivity.

2.1 Importance of knowledge management

The rapid changes in the ICT sector has brought down the communication barrier in the
worldwide and has made instant communication and sharing of knowledge possible
independent of physical location. Globalisation, fuelled by this growth in the ICT sector, has
led to the creation of new markets in emerging countries and as a consequence to the deep
restructuration of supply chains further leading to the outsourcing of services and
businesses. Moreover the constant development and improvement in technologies has
changed the market trends and created the need for faster product development.
For the auto industry, all the major leading companies have most of their activities outsourced throughout the world. Also the demanding and competitive nature of the automotive
market has led to the merging of several companies. These new organisational structures
can only increase the complexity of accomplishing a design, manufacturing, assembling or
business process.
Moreover the process of new product development no longer requires only brainstorming
sessions by design engineers or product engineers but also requires the participation of all
staff at all levels of the organisation as well as other external partners such as the suppliers,
customers, equipment manufacturers and other automotive experts from other organisations.
For instance Toyota has come up with a new global business model called learn local, act
global (Kazuo, 2007) which takes advantages of the local tacit knowledge available in their
foreign subsidiaries so as to adapt better and faster to the local market needs.
Market volatility is a representation of the demand for automobile sales which has a direct
impact on the business, production and management processes of the companies. Thus it
has direct impacts on the cost of the purchasing, production and operating businesses of car
manufacturers as well as their product development processes. For instance due to the world
economic downturn in 2008, the demand for passenger cars equipped with advanced
electronic systems had suddenly dropped whereas the demand for economy, fuel-efficient
and environmental-friendly car designs had shot up.
Due to the highly competitive and volatile nature of the automobile industry, this sector has a
very high rate of employee turnover as companies are constantly downsizing or merging with
other companies. A great amount of knowledge is lost when a company loses its
experienced and technical employees. Besides the knowledge possessed by these
employees is actually useful for competitors and a lot of resources is later spent to retrain a
new employee. The loss of knowledge incurred by employee turnover inevitably has an effect
on the product development and innovation capability of the company. For instance in the
1980s, car American company Chrysler suffered from the loss of two important repositories
of knowledge: Technical Reports and Chrysler Institute of Engineering which led to many
problems such as inferior production quality, costly mistakes in new designs of cars, lack of
teamwork and loss in innovative ability. It was as if Chrysler was forgetting its own solutions
and procedures on how to build cars (Jacobson Al, 2007).

For all the reasons mentioned above Wikinvest defines the global automotive industry as
highly complex, competitive and volatile (Toyota Motor Corporation, 2007) where the need
for knowledge management is imperative to help in the production process, to keep the
innovative ability of the organisation, to be able to transfer knowledge across the spread
organisation and to preserve the knowledge asset despite high employee turnover.

2.2 Knowledge management needs

In order for knowledge management to bring solutions to the automotive industry to face the
problems it faces as explained in the previous sections, certain knowledge management
mechanisms have to be developed and deployed so as to enable the flow, discovery and
capture of knowledge within the organisation. These mechanisms directly involve the
organisation culture, employees behaviour and actions as well as the companys actual
physical infrastructure.
It is important for the organisation to develop a culture that encourages, rewards and
recognises the practices of knowledge sharing, creation/discovery and capture. Also
exclusive company time should be given for weekly or monthly activities such as informal
meetings between factory engineers and technicians so as to discuss best practices on the
production floor.
The organisation structure that encompasses the hierarchical structure need to encourage
knowledge management mechanisms. For instance activities such as communities of
practice, formal or vocational training or on-the-job socialisation for knowledge sharing and
discovery purposes are important to pass on tacit knowledge from one employee to the
other. At DaimlerChrysler, later known as Daimler AG, the creation of an informal Tech
Club composed of engineers coming from the eight different engineering departments was
achieved. The aim of this community of practice was to exchange best practices and lessons
learnt. Also each department was given the responsibility of maintaining a part of an
Engineering Book of Knowledge that is shared with different teams.
The information technology structure existing in the organisation should provide the means
for data processing, storage and communication that are required for by the knowledge
management system. The three main components of the ICT structure should incorporate:
- Databases and database management systems to hold information on which data mining
processes can later be applied to.
-Communication and electronic messaging means to transfer or retrieve data instantly and
remotely.
- Internet or intranet network platforms to allow the remote and secure access to the
knowledge resources.
In order for knowledge management to be effective in the automotive industry, a common
language is required for financial and business staff, suppliers, manufacturers and engineers
from local or international subsidiaries to participate together in the process of knowledge
sharing, discovery and capture for the product development purpose.
For knowledge management to be pervasive within the organisation, it is sometimes a
definite advantage to bring about apparent changes to the physical structure of the
organisation so that knowledge management does not remain an abstract managerial in the

organisation. To encourage on-the-job socialisation and informal meetings, the availability of

meeting rooms and open spaces represents an incentive. Also a job position and office for
the Chief Knowledge Officer is a clear highlight of the importance of knowledge
management. Also it should be encouraged for leading car manufacturers to have a built-in
structure or workshop or even university for the formal and vocational training of future or
current employees.

2.3 Main implementation strategies

Some of the most useful and effective strategies to implement knowledge management for
an automotive industry include most of the following points discussed below:
1) The first step is to identify the sources of knowledge within the company and to convert
this knowledge into accessible form. This knowledge includes the technological-based
expertise and knowhow related to the automotive industry and customer and supplier
focused knowledge. All that is unique to a company and thus provide it with its
competitive edge over other companies.
Also an automotive organisation already possesses a vast amount of existing explicit
knowledge that may not yet be accessible across departments. This includes: customers
reports in customer service departments, CAD/CAM diagrams and software in design
department, suppliers specifications and information in accounting department and test
reports and troubleshooting guides in maintenance department.
2) Efficient and successful knowledge management requires an ICT infrastructure to
implement mechanisms and tools for sharing, capturing and retrieving knowledge make
them securely accessible and transferrable. For instance to support certain activities such
as communities of practice, building of book of knowledge or remote collaborative work
with customers and manufacturers in the global automotive industry, the ICT
infrastructure has to provide reliable tools to achieve these activities.
3) Automating some processes and controls of the automotive production line through the
implementation of mechanisms for knowledge applications such as knowledge rules and
procedures can provide more time for knowledge discovery and creation. For instance a
database of lessons learnt and best practices can save enormous resources when
solving problems or creating a new product.
4) Once the knowledge management systems has been implementing it is also important to
benchmark the performance of the mechanisms and tools put into place and relate them
to the resulting productivity, performance and competitiveness of the company overall or
of a specific process (Skyrme J. David, 1999).

3 Knowledge management at Daimler AG

In this chapter the knowledge managements systems that were implemented by Daimler AG,
a German automotive corporation, in order to meet the needs described above will be
presented.

3.1 Knowledge discovery systems

Knowledge discovery systems are systems that help to create new tacit or explicit
knowledge. This can either be developed from data and information or from synthesis of
knowledge. In this section the knowledge discovery systems that are used by Daimler will be
described.

3.1.1 Knowledge Discovery in Databases

Knowledge Discovery in Databases (KDD) is intensively applied at Daimler AG. It describes
the development of methods to extract useful knowledge from data. It mainly relies on data
mining and includes technologies like statistics, databases, pattern recognition, machine
learning, data visualization, optimization and high-performance computing (Fayyad, 1997, p.
1).
3.1.2 CRISP-DM
The Cross Industry Standard Process for Data Mining (CRISP-DM) is a process model for
data mining and thus part of KDD. Data mining means discovering patterns in large data
sets. CRISP-DM was proposed by a consortium which included Daimler in 1996 (Kurgan &
Musilek, 2006, p. 5).
The defined process consists of six phases. The first phase is called business understanding
its goal is to develop the requirements from a business perspective. In the second phase,
data understanding, initial data will be collected. In the data preparation phase the final
dataset will be constructed. These have to be modeled, the fourth phase, and the model has
to be evaluated to ensure a high quality from the data analysis perspective. Finally the new
knowledge has to be organized and presented, which happens in the deployment phase
(Chapman, Clinton, & Kerber, 2000, pp. 10-11).
3.1.3 KDD-applications developed by Daimler
The Daimler AG has an Information Mining Department which is responsible for KDD tasks.
One KDD-application developed is the system called WAPS that is able to predict warranty
and goodwill costs. It is based on the QUIS database of Daimler where historical data of
warranty costs is stored. The system was developed in a joint activity from experts of the
Research & Technology and the Sales & Service department (Hotz, Grimmer, &
Nakhaeizadeh, 2001, pp. 1-2).
Another example for a KDD-application is REVI-MINDER. It detects and analyzes deviations
in warranty and goodwill cost statements (Hotz, Grimmer, & Nakhaeizadeh, 2001, p. 4).

3.2 Knowledge sharing systems

Knowledge sharing systems can be described as systems that enable members of
an organization to acquire tacit and explicit knowledge from each other (Irma BecerraFernandez, 2010).
Over time, knowledge islands developed within Daimler, areas where Knowledge
Management practices had been applied, but in isolation from other parts of the company.
This made it a necessity to share the knowledge gained by those different island, several
initiatives have taken a place in Daimler AG to create Knowledge Sharing Systems that will
be explained in this section.
3.2.1 Daimler AG Tech Clubs
Communities of practice or as theyre called in Daimler Tech Clubs are informal crossplatform clubs that facilitated interaction between engineers and designers working on similar
problems in advanced engineering, body, chassis, electrical, energy management, interior,
powertrain, program management, scientific labs, thermal, and vehicle development. The
clubs, which were sponsored by a corporate vice president, held informal meetings and
exchanged best practices (Michael G . Rukstad, 2001).

Figure 1 - Daimler Tech-Clubs Structure

3.2.2 Daimler EBOK

EBOK or (Engineering Book Of Knowledge) is briefly, a system that provides best practice
information on almost every issue related to manufacture of cars. Or as Efraim Turban define
it in his book Information Technology for Management: The Engineering Book of Knowledge
(EBOK) is a knowledge database. It contains the best practices contributed by 5000 users.
The EBOK is divided into 3800 chapters. It contains both internal and competitors
information. It is a work in progress and will continue to accumulate new additions,
modifications, corrections and the results of ongoing research and development work
(Turban, 2006).
The EBOK was devised to capture and distribute the knowledge generated by the subject
matter experts in Tech clubs. Daimler decided to create the engineering book of knowledge
containing a bucket of knowledge such as test data, CAD/CAM drawings and data from
transaction of purchase, inspection and so on (Jawadekar, 2011).
EBOK of Daimler is a living real time online repository of knowledge for engineers to refer,
exploit for deployment, and share in collaborative spirit. Knowledge is explored and entered
into the EBOK through an iterative team approach: the Tech Clubs. Best practices are
identified, refined, confirmed, and finally entered into the EBOK in a secure interactive
electronic repository. When an author proposes a best practice, users in the Tech Club
responsible for that area of knowledge react by commenting on the knowledge through a
discussion list. One manager, the Book Owner, is ultimately responsible for approving new
entries and changes to the book. The Book Owner joins the conversation. The author can
respond to the comments by either building a better case or going along with the discussion.
Ultimately the Tech Club decides, and the Book Owner enters the new knowledge. The Book
Owner is the individual who is ultimately responsible for the accuracy of the book, and
therefore approves entries to, modifications to, and deletions from the book (Turban, 2006).
Tech Club members keep the EBOK up to date and highly productive. The EBOK comprises
several books devoted to different key areas of knowledge and problems and solutions. The
EBOK also provides views of experts and peers for using a particular knowledge entity
(Jawadekar, 2011).
3.2.3 Other initiatives of Daimler in Knowledge Sharing systems
Daimler AG developed a Worldwide Intranet system (Wel-Kom) to transfer knowledge from
one unit to another. The company also deployed a Post Merger Integration Program to
transfer knowledge and share information across the firms locations (e.g., US, and
Germany) (Cuffe).

3.3 Knowledge capture systems

Knowledge capture systems support the process of eliciting either explicit or tacit knowledge
that may reside in people artifacts or organizational entities. (Irma Becerra-Fernandez,
2010).These systems rely on mechanisms and technologies that support externalization and
internalization.
Daimler AG has created a method of on-the-job training that has been later adopted by a lot
of German companies. This method is called Learning bays.
Daimler had a tradition knowledge sharing mechanism of vocational apprenticeship for new
employees. It thus had an in-built structure for exchange of tacit knowledge from one
generation to the other.
3.3.1 Learning Bays Method in Daimler
The Learning bays concept arose from a decentralized learning project in two Daimler plants
(Millward, 2005). The learning bay has a double infrastructure of a normal workplace
(Including all necessary resources) and a learning zone (comprising a range of learning
facilities).
In DaimlerChrysler, a group of four to six apprentices spend about six week in a one learning
bay during the last 18 months of a three and half year apprenticeship. Apprentices do the
same work as the skilled workers but in a controlled environment with a trainer. Each
apprentice job rotates within each learning bay so that they acquire competence on all key
tasks including team leadership.
The planning, doing and checking of assignment are performed by the group collectively on
both content and process (including personal attitudes) level. The trainer creates a semiautonomous learning environment to encourage self-managed problem-oriented learning.
The learning bay can also be a site for initiating innovation of new work processes and
arrangements. The theoretical basis of the concept of learning bay builds on the principles of
experiential learning. (Millward, 2005).

3.4 Knowledge application systems

Knowledge application systems utilize knowledge that was previously gained. With the help
of this kind of systems people don't have to actually acquire the knowledge in order to gain
the benefit of reutilizing it. In the following, knowledge application systems, their mechanisms
and their technologies that were developed and applied by the Daimler AG will be described.
3.4.1 Cased-based reasoning system for KDD projects
Daimler AG faced the problem of retrieving fast useful experiences from successfully
completed KDD-projects for new problems. This was the case because project teams in this
domain existed only temporary and time and resource issues during the projects didn't allow
a proper research and documentation of knowledge (Bartlmae & Riemenschneider, 2000, p.
1).
In order to compensate this problem, Daimler created a framework that is based on casebased reasoning but also considers the organizational structure and responsibilities
regarding knowledge management tasks by adopting the experience factory approach and
knowledge building blocks.

Case-based reasoning
Case-based reasoning (CBR) is the process of solving a new problem by looking for a similar
problem that is already solved and reusing its solution by adjusting it to the new context.
Context-based reasoning consists of the steps retrieval, reuse, revise and retain of cases. A
case is a set of attributes that describe the problem and its solution. Cases are stored in a
case base. Additionally, the process relies on knowledge of how to select, interpret and
transform a case, also called CBR-system design (Bartlmae & Riemenschneider, 2000, pp.
4-5).
Experience factory organization
The experience factory as an organizational approach is based on the idea that collecting
experiences improves development processes. In this organization the collection of
experiences (project-teams) and the creation of experiences (experience factory) are
separated. The experience factory collects, structures, saves and retrieves experiences. This
is done by experience engineers, the experience factory manager and supporting agents as
they interact with the experience base where experiences are stored as experience
packages (Bartlmae & Riemenschneider, 2000, p. 2).
The following figure visualizes the different units of the experience factory organization
including the department management.

Figure 2 - Experience factory organization (Bartlmae & Riemenschneider, 2000, p. 2)

Responsibilities regarding knowledge management

Daimlers aim was to combine the above described frameworks to create a case-based
reasoning system and an organization that is suitable for knowledge management. Therefore
the tasks regarding knowledge management were separated according to the building blocks
framework. The knowledge blocks are identification, acquisition, development, distribution,
use, preservation, goals and valuation (Bartlmae & Riemenschneider, 2000, p. 3).

First, the CBR-steps were mapped to the knowledge building blocks. After that, the roles of
the experience factory organization were assigned with responsibilities regarding these
steps. The result can be seen in the figure below.

Figure 3 - Responsibilities of Experience Factory roles mapped to knowledge management tasks in the
CBR steps (red = important, blue = less important role) (Bartlmae & Riemenschneider, 2000, p. 5)

Realization of a system for KDD-projects

Daimler applied this framework for their KDD projects in Customer Relationship
Management. They implemented the CBR based experience factory in their organization.
The experience base called Core-DM, Case Oriented Reuse of Experiences in Data Mining,
was the result of the development of the technical architecture. In this all the required
experience package types regarding KDD projects can be stored, e.g. documents about
CRISP-DM, data-transformation used in former KDD-projects, lessons learned, experts
involved in KDD projects and KDD methods (Bartlmae & Riemenschneider, 2000, p. 7).
3.4.2 Other knowledge application systems
The principle of case-base reasoning has also been used by Daimler to develop a method to
automatically set test-links between test cases and reused system requirements. This is
applied when a new vehicle series is introduced and previous artifacts, i.e. knowledge, are
reused for the engineering of the new series (Noack, 2013, p. 1).

4 Performance benefits of knowledge management

The goal of knowledge management of companies in the automobile industry, as explained
in this report, is to improve their product and financial performance and thus to gain a
competitive advantage.
The case study on the Daimler AG provides examples on how knowledge management
systems can help to reduce costs, improve profitability and to improve products and services.
However though quantifying the direct performance benefits of implementing knowledge
management is difficult, it was easier for the company to cope with the problems they
previously faced. With the use of knowledge management mechanisms and tools, Daimler
AG was able to discover niche markets and decrease their product development cycle time
to meet the requirements of the abroad markets. This was a major factor in helping them
recover from significant financial losses.
Several studies which investigate the impact of knowledge management on the
organizational performance conclude that under a number of conditions knowledge
management improves the organizational performance. E.g. a study showed that knowledge
sharing through face-to-face communication is positively related to product and financial
performance. The condition of high technology dynamism, which is given in the automobile

industry, lead to the finding that technological knowledge sharing only has a positive impact
on the product performance (Lakshman & Parente, 2008, p. 1).
In conclusion, though there is a lack of information and tools to help correlate the direct
impact of knowledge management on the performance benefits of a company it is evident
that knowledge management system help organizations to cope with market challenges in
their domain and, in the end, improve their product and financial performance.

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