posted 1 Oct 2004 in Volume 8 Issue 2
Senior managers are slowly accepting the value of intangible assets, but guaranteed ROI is still high up on the organisational wish list. Jerry Ash investigates tying knowledge-management proposals to critical success factors and offers an antidote to the scepticism that is hindering KM potential.
In America in the late 1800s, thousands of bottles of products referred to as ‘snake oil’ were sold under the guise of medicines that could cure all ailments. Trade was conducted on the back of an empty promise, primarily to gullible patrons at carnival sideshows. In 1905, the snake-oil business suffered a serious setback when Collier magazine published an exposé. If selling knowledge assets ever made you feel as if you were a snake-oil salesman, it may be because your presentation of the product made it seem like nothing more than empty promises.
Those who promote the human knowledge asset are far from being snake-oil salesmen, but the value of their intangible product is often met with similar scepticism by executives who want guaranteed ROI. The problem is that many knowledge advocates are so convinced of the potential of knowledge management that they fail to translate their product into terms management can understand. Knowledge advocates are sometimes guilty of failing to recognise that knowledge is not an end in itself: if it is marketed without care then management will simply lose interest. Knowledge mining, proposed in terms of measurable results, can be a much easier sale, as the tangible results of knowledge use can be measured and presented to cynical managers.
During a conversation about knowledge audits with members of the Association of Knowledgework (AOK), Carl Frappaolo of the Delphi Group said analysis of a knowledge audit cannot proceed with any degree of focus until the critical success factors are defined. He advised asking an organisation what matters most to its leaders. From there, he said, the potential of KM can be analysed and proposals tailored to meet both the existing and future strategies of the company. Frappaolo suggested asking organisations about the issues that they felt needed to be addressed to ensure both solvency and competitiveness.
This type of information is invaluable when developing practical proposals that have the potential to meet an organisation’s measurable, bottom-line objectives. A company’s success metrics will also be the metrics it employs to assess the value of managing knowledge, and, in turn, the value of knowledge itself. Bob Buckman, former president of Buckman Laboratories, followed this basic principal at the company and measured KM success by the number of new products Buckman Laboratories brought to market. It seems that it is no longer the intangible nature of intellectual capital that frightens executives.
Stephen Denning, consultant to the World Bank and author of The Springboard and Squirrel Inc., believes that knowledge sharing is essential to economic survival in the new economy. His beliefs are echoed in a study by Baruch Lev, professor of accounting at the Stern School of Business of New York University, who has reported a dramatic shift in US investment patterns. In 1929 the ratio of tangible to intangible assets was split 70:30, but in the current climate, investment in intangibles dominates. Lev also notes that the ratio of market to book value has shifted from 1:1 in the mid-1970s to more than 6:1 in the mid-1990s. For some companies, the change has been even more significant with AOL and Microsoft both confirming that as much as 90 per cent of their market-capitalisation value is based on intangible assets. Organisations are no longer closed to the value of intangibles. However, management wants to know how knowledge advocates plan to help mine intangible assets to meet critical-success factors.
This was a key strategy for Leif Edvinsson, Skandia’s groundbreaking CKO, over a decade ago. Edvinsson’s business-oriented approach to intellectual capital (IC) has earned both him and Skandia sustained recognition over the past few years, culminating in Skandia being named ‘Most admired knowledge enterprise in the world’ in both 1999 and 2001. While Edvinsson thinks in the idealistic terms employed by many knowledge professionals, his action plans are no-nonsense. “IC is about future earnings potential,” he says. “Accounting is the knowledge nerve system of an enterprise.”
While reviewing a draft of this column, Edvinsson added, “The core of KM and its financial value is to increase the value adding of human potential.” This, he says, can be measured by value added per employee or by national-level GDP per capita. Either number highlights the value creation by the knowledge worker, or human capital, by using structural capital such as knowledge technologies, patents and knowledge recipes. Skandia has measured both and has improved its figures by approximately 100 per cent in three years. “The organisation per se becomes the springboard for human-knowledge potential, the tool for value creation,” says Edvinsson.
This is why Buckman Laboratories, like Skandia, still focuses on innovation to define whether the organisation is renewing at the right pace. If not, the value adding per employee will erode and leaders are held liable. This liability forms the gap between what is achieved by value adding versus what can be achieved – in other words, the potential earnings capabilities.
When Ash Sooknanan was corporate knowledge manager for the Canadian Workplace Safety and Insurance Board (WSIB), he recalls that what drove WSIB was business needs. “Too often we forget that this is what knowledge management in business is all about,” he says. “Knowledge management is about leveraging what we know to address the needs of the business. When we started with KM we had no big money, big changes or big ideas in mind. We wanted to just work smarter, re-use, reduce and recycle what we could.” The WSIB is now recognised as a KM practice model for government agencies.
K.S. Srinivasa Murthy, former corporate head of knowledge management for Hindustan Lever, wasn’t KM trained. He had spent 30 years in the Unilever group of companies in India in marketing, general-management and commercial roles. He was chosen to head the KM initiative because his experience in the company provided a deep understanding of the business processes, key strategic priorities and organisational culture, and he also had a company-wide personal network.
Despite this, he found it difficult to convince management about the value of enterprise-wide KM programmes in his first year. “One of the reasons for this difficulty seemed to be our inability to articulate to the senior management what knowledge management was and why it needed to be a corporate priority in a persuasive and convincing way,” he recalls. He believes that the way KM is described is often seen as fuzzy and amorphous by senior business managers. It is either perceived as being IT-based (knowledge portals, content-management tools and so on) or HR-based (organisational culture, performance-development plans, rewards and recognition systems to support organisational learning and so on). Murthy’s solutions included the realisation that KM strategy must be fully aligned to the strategic priorities and business goals of the company – the very reason he was chosen for the position in the first place.
Elsewhere, the inability of knowledge managers to put a business-solutions spin on KM has led to its fragmentation into component parts that are more successfully positioning themselves as critical success factors.
Customer-relationship management (CRM) and its spin-offs are an example of this. CRM engages an interdisciplinary force that includes public relations, marketing, sales and R&D, among others. It offers a problem/solution approach that lends itself well to proposals based on critical success factors. To some extent, it has been so well received that some believe CRM has proven to be more recession proof than KM, as it focuses on initiatives that will help an organisation through a downturn. KM advocates grouse that CRM is only a slice of the KM pie, not the whole plate. However, they are forced to concede that CRM advocates have found a way to connect a major piece of KM potential to the business agenda.
KM advocates are in a hurry to establish cultures, processes and systems throughout organisations. But even during the recent euphoria of a high-flying knowledge-based economy, few organisations have wholly adopted KM. Since the most successful KM projects start small and eventually spread to an entire organisation, KM proposals should support company needs. Many believe a grand plan for KM will collapse, while incremental steps, though slower, are more deliberate and thus more likely to get the KM programme where it needs to go sooner rather than later.
While some knowledge managers have met sustained resistance to their KM strategies, champions like Edvinsson and Sooknanan have deliberately plodded through years of effort to formulate a few good projects for organisations that consider KM an integral part of their business strategy.
“Think big, start small and build incrementally,” remains Sooknanan’s mantra. The WSIB initiative began with one small department working on one system-wide problem: how to find, share and leverage knowledge. “Our humble start opened a door of opportunity. Other branches, the rest of the IS division and all other divisions in the organisation gradually jumped aboard as the KM solution grew from a localised, grassroots practice to an organisational priority,” says Sooknanan. In WSIB’s grassroots experience, organisers found that having a champion at senior level and a small team or individual to drive the initial start-up was the bare minimum needed to make a difference. Small successes led to support, not only at the top of the organisational chart, but also at the bottom. Other managers and individuals began to see how KM strategies could help them to help the organisation achieve its critical success factors.
Too often KM programmes have failed because they have adopted the snake-oil-salesman approach and so have been perceived as fads. One KM practitioner recently expressed his concerns after his company rolled out a purported KM repository, with a glowing note and a link and complicated password that was necessary for access. “I had a couple of thoughts as I looked at the announcement,” he said. “First, while the announcement made the right noises with regard to the value of KM, it really didn’t address the ‘what’s in it for me’ of the new system. Now I’m afraid when the next big thing comes along, KM will lose momentum, without people ever realising what it was about in the first place.”
What seems to be missing in this description is even more telling – a lack of explicit purpose, both for the organisation and for the employees who will be expected to carry it out. Philosophies, perceived knowledge value, ideals, processes and systems alone are not appealing from the top to the bottom of an organisation. They provide no ‘what’s in it for me’, in addition to a lack of ‘what’s in it for the organisation’.
No-one would propose that knowledge-use advocates are falling into a pragmatic pit, but as effective as KM is in theory, in practice it is faced with an increasingly difficult fiscal challenge. David Skyrme, UK-based independent consultant, says there are only three main planes on which to justify KM: asset value, benefits potential and cost effectiveness. Skyrme calls these the ABCs of an unassailable business case for knowledge management and believes that they are inter-related, since specific initiatives could affect all three, and particular outcomes could be put into more than one category. However, he admits there are several roadblocks to making a watertight case, including:
- Lack of a baseline;
- Immediate cost versus long-term benefits;
- Lack of shared management vision;
- Too much focus on financial indicators;
- Tenuous links between cause and effect.
Carl Frappaolo, whose Delphi Group advises more than 20,000 clients worldwide and conducts numerous KM audits annually, observes that the frustration with quantifying KM has increased dramatically as economic conditions have tightened. “The question of measurable value is asked with far greater frequency,” he says. “This is a symptom of the state of the economy.” KM is not simply supported with a management vision as it was previously: today’s CEOs and CFOs want hard-dollar returns.
Delphi Group has its own answers to hard-dollar questions, illustrated in the examples below:
Example 1: productivity proficiency
A federal lobbying group was looking to increase productivity without increasing staff and personnel costs. A KM audit revealed that many knowledge workers spent 20 per cent of their time looking for precedent, in-house expertise and general knowledge external to the organisation. It was also revealed that it took about five years for an employee to become proficient at searching for this knowledge. A KM proposal promised to cut staff research time by 50 per cent and virtually eliminate employee acclimation time, freeing up time for staff to engage in innovation and production.
Example 2: innovation issues
An aerospace company was facing production problems because employees were frustrated by senior managers who asked them to be innovative but often publicly quashed innovation. A lack of a clear and well publicised corporate mission statement confused workers and the KM solution was obvious.
Example 3: leadership
A pharmaceutical company selected team leaders based on seniority. Drug-development teams said they were at the mercy of their team leaders with regard to knowledge practices and, ultimately, to the success of a drug’s FDA approval. Team leaders needed to be savvy in cultural development and team building, not drug development. The root of the problem was in the selection of leaders and the culture they created.
The list of opportunities to apply KM is endless. What is most important is that you begin finding these stories within your organisation and develop proposals for KM initiatives based on the right critical success factors: the ones that matter most to management; that obviously call for the KM solution; that have a high probability of success; and that can be replicated elsewhere. If the conceptual nature of KM still makes you think of yourself as a snake-oil salesman, consider this next story.
One American snake-oil salesmen in the late 19th century was a druggist in Georgia by the name of John Stith Pemberton, a former confederate army officer. On 8 May 1886 he invented ‘coca’ syrup in a 30-gallon kettle hung over a backyard fire. It was soon marketed as a brain and nerve tonic. Later that summer, a customer wandered in complaining of a headache and poured a little of the coca syrup he had just purchased into a glass of soda water. It tasted great and was soon sold in carbonated form. Pemberton’s bookkeeper suggested the name Coca-Cola because it described the two main ingredients – extract of coca leaves and cola. It was an early collaboration between management, customer and employee. By 1905, the coca (which contained traces of cocaine) had been removed and it was no longer sold as a patent medicine.
To this day, Americans still ask for the fizzy brown beverage by brand name, even though they often can’t identify it in blind taste tests and have no conscious brand preference. The moral of the story is, find the right critical success factor and your next KM proposal will get the attention is deserves.
Jerry Ash, US correspondent, Knowledge Management, firstname.lastname@example.org