Dynamic knowledge systems

Achieving real ROI from KM technology

Implementing any advanced knowledge management system usually requires an organisation to commit to a considerable initial outlay, but the returns KM technologies generate are typically vague and ill-defined. Boris Pluskowski outlines how dynamic knowledge systems, so often overlooked by businesses, can generate immediate, measurable benefits, providing evidence of ROI that can prove invaluable at the beginning of a KM initiative.

The problem with KM systems

Why do current knowledge management systems find it so hard to deliver a solid return on investment? And why is it that so many KM success stories revolve around the impromptu, unofficial applications of technology by informal communities of practice?

KM has long been plagued by its inability to show unambiguous metrics that can demonstrate a solid monetary return to boardroom executives without using assumptions that generally range from the subjective to the fantastic. This isn’t to say that benefits don’t accrue, but the reality is that the vast majority of ‘traditional’ KM systems revolve around the achievement of intangible benefits. While those benefits can make all the difference between winning and losing in a knowledge economy, the purse string holders still want to see visible results of their money being well spent.

It doesn’t help that the most successful KM systems and processes within a company frequently end up being within the fabled communities of practice. Briefly, communities of practice are informal groups of practitioners, experts and other interested parties who trust each other to provide relevant and accurate knowledge, as and when it is needed. KM experts and IT vendors have been quick to jump on this concept and a huge industry has been built around trying to artificially create CoPs, formalise them, or else support these groups and individual practitioners through the use of knowledge repositories and other KM tools.

Yet these systems fail to achieve true value. Why? Because companies and IT vendors are building their KM systems without taking into account what makes the knowledge they are collecting useful and how it can best be used. Knowledge only becomes useful when it fulfils an identified need, and it is best used when provided on demand.

That’s a pretty tall order and a far cry from most current KM projects, which typically look to store existing knowledge in the hope that it may one day be re-useable. Yet certain types of systems avoid automatically taking this approach and, as a result, are able to reap real rewards that can be measured using conventional techniques.

Redefining KM systems

To better explain, we can divide knowledge systems into three main types: informational knowledge systems; knowledge management tools; and, dynamic knowledge systems.

Informational knowledge systems (IKS) typically store, manage and share mainly explicit knowledge on a ‘just in case it’s needed’ basis. There is usually no immediate need for the knowledge being harvested, which is usually deemed to be useful by somebody and placed in a repository in the hope that someone else can find it and use it some time in the future to save time or effort (and therefore money). Typical examples of this include case study or experience databases, best practice databases, expert directories, etc. There is an emphasis on knowledge re-use and the benefits of saved time through the lack of re-inventing the wheel. As a result of this emphasis, though, IKSs have a tendency to discourage creativity in the solution of problems, beyond the limits of existing knowledge.

Knowledge management tools (KMT) generally, but not always, work hand in hand with IKSs. Their main aim is to simplify access to the knowledge and information already in KM systems, and provide it in a timely manner by reducing the quantity of information available to what the tool believes is relevant for the individual user (usually based upon a user request or profile). Typical examples include search tools, portal applications and other information or knowledge filtering tools.

In both IKSs and KMTs, ROI tends to be measured using ratios and metric systems that try to quantify the intangible nature of the benefits achieved, such as time/effort saved, increased employee satisfaction or ease of use. However, these methods are unreliable and fairly subjective. How do you know just how much time a search tool saved you? How much ‘better’ are the decisions of knowledge-enabled employees? It’s just as possible that a user might have come up with an equally, if not more effective, solution to a problem if they didn’t have access to the best practices database.

This isn’t to say that these KM systems have no value; far from it – they are critical components of an effective KM infrastructure. But in implementing systems with fairly intangible benefits as an initial investment in KM, practitioners are, in a sense, shooting themselves in the foot.

Dynamic knowledge systems (DKS) are a totally different kettle of fish, however. They are systems that elicit on-demand, in context, timely and relevant information and knowledge from people when it is needed by somebody else. There is an equal emphasis on both the sharing of existing knowledge and the creation of new knowledge – and it is usually produced in response to an identified need, problem or challenge. Typical examples of this kind of system include informal CoP discussion databases, idea management systems and, to an extent, KM helpdesks and certain types of focused collaboration tools.

Because the knowledge provided and created is dynamically produced in response to an identified and timely problem, ROI for this kind of system can be far more easily quantified – frequently using standard accounting and tracking methods (rather than derivations that rely on the validity of multiple assumptions). Even cash benefits can be measured, usually in the form of new product developments, process improvements and cost savings.

This change in the focus to benefits that are easily understandable and, more importantly, visible – especially to senior board members – makes investment in this area a no-brainer for most corporations. Yet the majority of companies have overlooked this type of system, usually because DKSs, especially informal CoPs, are generally thought to be hard to implement due to the trust-reliant nature and complexity of the relationships within these systems. As a result, companies have been throwing their money at the informational systems that support individuals who participate in these systems, instead of trying to figure a way to have the corporate entity exploit the underlying processes that make these systems so successful.

Idea management – corporate-focused dynamic KM systems

Idea management (IM) systems have been around for over 100 years in the form of the stodgy, old corporate suggestion box. Yet recent advances in technology and, far more importantly, in understanding of the underlying processes have rejuvenated IM systems into a must-have corporate tool; a tool that early adopter companies are using to realise big benefits, and one that analysts have recently been touting as being able to “rescue knowledge management from oblivion”.

Quite simply, it turns the standard CoP discussion system on its head. In a CoP system, questions are posed from one practitioner to other practitioners within a trusted circle. However, in an idea management system, the corporation takes the place of the asking practitioner and asks its trusted employees for timely and creative solutions to its current problems – solutions and results are not only trackable, but are also closely aligned to the corporate strategy. Because the knowledge is collected in response to an identified problem, tracking the results can be as easy as asking, ‘Did it solve the problem?’ If the answer is yes, then a positive result ensues. For example, challenges based around getting your employees to help you cut costs will yield ROI in the form of measurable cost savings. Similarly, challenges focused at new product or marketing ideas can yield ROI in the form of new streams of revenue. How many other current KM systems can point to this type of easily attributable return?

However, you have to be careful. Ideas cannot be forced from people – they need to be volunteered. In the same way that knowledge sharing flourishes in CoPs of trusting practitioners, the corporation needs to take measures to make sure that it too is a trustworthy participant in the process and does not abuse the knowledge and ideas its employees share. Companies need to strive to make sure that they create a risk-free environment where employees will naturally share their knowledge and ideas.

Results frequently tend to show in a cascading effect, with employees initially using the new system to present ‘safe’ ideas to test the waters and only later, once the trust is established, do the truly out-of-the-box ideas tend to emerge. Also, you have to realise that the creative process and the sharing of true knowledge can be a mentally and physically exhausting process, one that cannot continue relentlessly without some stagnation. Instead, top IM programs follow an ‘event’ approach that helps to maintain enthusiasm, energy and genuine creativity throughout the process.

IM systems as a springboard

If done well, however, a good idea management system will give you more than just the standard DKS benefits. It will also provide the ideal platform from which to launch further KM initiatives. Due to the strategically-focused knowledge that is being collected, and the results that are being generated, the value of your employees’ knowledge is highlighted. This then drives the need for further KM. This newly found and valuable knowledge needs to be stored and shared in an informational KM system so as to be accessible across the company. Once this database grows, people need tools to be able to search and filter through previous submissions. The dynamic nature of the knowledge created means that we are capturing both tacit and explicit knowledge from employees. This means that a company’s true experts are revealed, which is a far more accurate basis for KMTs than trawling through e-mails looking for repeated words and terms.

In addition, the increased socialisation that is encouraged in the firm can lead to the impromptu formation of communities of practitioners as people discover others who have similar interests from the ideas submitted and the following interactions. If done across borders, and across departments, true innovation can become rampant throughout the organisation, with the collaboration of real experts with multidisciplinary approaches leading the way.

A practical case study – Bristol-Myers Squibb

Bristol-Myers Squibb is America’s fifth largest pharmaceutical company, with over $19bn in 2001 revenues. The company’s mission is to extend and enhance human life by providing the highest quality healthcare products and services. Last year it had 28 product lines that recorded annual global sales of more than $100 million each, including four blockbuster drugs with more than $1bn in annual sales each.

As a leader in its field, Bristol-Myers Squibb (BMS) relies on the ideas, innovation and intellectual ability of its employees to continue developing a profitable range of products, ranging from simple headache tablets to complex cancer treatments. New drugs cost millions to discover, develop, test, approve and market appropriately – and while the resulting revenue can be rewarding, it can also be short lived. In addition, the pharmaceutical industry as a whole has also been less successful at coming up with novel drug treatments. As the Wall Street Journal reported in February this year: “In 2000, US drug makers together spent more than $25bn on R&D, but filed fewer than 150 applications for new drugs. In 1983, they spent less than $4bn and filed more than 250 applications. Companies such as AstraZeneca, Schering-Plough Corp., Merck & Co. and others all face imminent patent expirations on blockbuster drugs, which typically account for a large proportion of a drug makers profit.”

BMS decided to address this problem head on and turned to the people who knew the industry best: its employees. In late 2000, BMS organised an audit of its existing innovation activities and found that many of the most pressing challenges could be addressed through an effective company-wide idea management system. With a number of BMS’s key products coming off patent, foremost in the company’s mind was the need to increase the available pipeline of customer solutions and maximise its investment from its existing solutions.

In a company where a large percentage of the employee population hold PhDs and other advanced degrees in a wide range of subjects, management saw significant potential in increasing employee participation in business problem solving, in turn harnessing the vast amount of brainpower available within the corporation. However, any system considered would have to be able to handle the massive volume of knowledge generated without similarly large administrative costs.

BMS now runs Idea Central, an idea management system from Imaginatik, on the corporation’s intranet, making it available to over 30,000 employees in North America. The event approach keeps employee participation rates high, and aligns corporate creativity with immediate strategic business objectives.

Submitted ideas are visible in a shared space to encourage idea development through peer reviews and comments. This has proved useful in turning seed ideas into more mature concepts. Event-specific review teams evaluate submitted ideas against a weighted scorecard that is customised for each event, ensuring that each idea is rated according to consistent, suitable criteria. The top ideas are presented to management and the best ones are then implemented. Unused ideas are stored in an ‘idea warehouse’ for possible future use.

After only six months of using Idea Central, BMS’s employees had contributed over 5,000 ideas, some of which appeared in the market within months of their submission into the system, particularly in the area of direct-to-consumer promotions. BMS anticipates a substantial multi-million dollar increase in revenue in its first full year of use of its IM system, achieved through revenue-generating sales and marketing ideas, as well as cost savings and process improvement ideas.

Take, for example, the ‘War on Diabetes’ campaign, which was designed to collect ideas from sales and marketing employees to find new ways of promoting Type II diabetes treatments. From the 500 ideas gathered, several were implemented within months of the campaign starting. One employee had the idea of customising a mobile testing unit to tour the US, promoting BMS treatments. Another idea involved new techniques for direct-to-consumer marketing. These ideas and more were implemented as part of the equally successful ‘Be Aggressive’ marketing campaign, including the ‘glucovan’, a multi-million dollar diagnostics unit that travelled the country in 2001 and 2002, screening over 140,000 people for Type II diabetes and raising awareness of the disease throughout local communities.

Although a statistical analysis of idea evaluations has shown that only about 2.5 per cent of the ideas captured are truly exceptional, up to 10 per cent of ideas are deemed worthwhile implementing, and even a single ‘small’ idea can pay for the cost of the entire system. As Marsha McArthur, innovation manager at BMS, says: “The important point is that you’re still collecting the one or two ideas that could make the difference between winning and losing in an extremely competitive landscape. One or two ideas here, one or two ideas there, and it really starts to add up.”

The early success of the system has now led to plans to expand its use to other divisions within the company, including a global roll-out to all employees. The company is also working on plans to collect ideas from contributors outside the organisation, such as suppliers, physicians and patients, to exploit outside knowledge and increase participation and commitment throughout the value chain.

Conclusion

For too long, KM systems and companies have been trying to bio-re-engineer the hand to fit KM tools, to paraphrase Dave Snowden of IBM’s Cynefin Centre for Organisational Complexity, thus destroying creativity and innovation. Companies and KM vendors alike have attempted to come up with systems to transfer employees’ knowledge into physical corporate assets without really understanding the process.

Knowledge needs to be stimulated to be exposed, and new knowledge is created when existing knowledge is contested. It is widely accepted that new knowledge is the lifeblood of companies in the knowledge economy – not least because they provide the foundation for increasing competitive advantage. If it is generally accepted that when you introduce a new concept or programme to your company (such as KM, for example), you should always aim for the ‘quick hits’ first, isn’t the most easily seen return an impact on bottom-line results?

Dynamic knowledge systems provide the environment in which the stimulation and creation of new knowledge, as well as the gathering of old knowledge, can take place. Idea management gives that environment a focus on providing results the corporation can use. In addition, IM is an effective springboard for the introduction of KM systems with more intangible returns. Sounds easy, doesn’t it? It would be ironic if, after all the money spent on the current breed of corporate KM systems, one of the oldest knowledge management tools known to man ends up saving the day.

Boris Pluskowski is a senior consultant at Imaginatik. He can be contacted at: boris_pluskowski@imaginatik.com