Book review: Knowledge Assets

Steve Hales reviews Knowledge Assets – Professional’s Guide to Valuation and Financial Management by Mark Clare and Arthur DeTore

Title: Knowledge Assets – Professional’s Guide to Valuation and Financial Management
Authors: Mark Clare & Arthur DeTore
Publisher: Harcourt Professional Publishing, 2000
ISBN: 0156070006

You will probably have passed over Knowledge Assets – Professional’s Guide to Valuation and Financial Management when it was published back in 2000. The title doesn’t excite and it has a rather unprepossessing cover. However, behind the slightly misleading title is a unique attempt to provide a methodology for financial valuation of any knowledge-management project, whether culture change, BPR or IT-based. The authors are knowledge managers within Lincoln Re, a US re-insurance company, where they have developed and successfully applied the methodology.

The book is divided into three main sections, which provide: (part one) introductions to KM, financial management and systems thinking; (part two) the authors’ model for valuing knowledge and knowledge projects; and, (part three) examples of applying the methodology in Lincoln Re.

KM is broken down into knowledge product, intellectual product and knowledge work; this last is further broken down into efficiency and learning. There is an introduction to discounted cash flow and real options value as the bases for valuation and there is also a description of transaction cost economics. The introduction to systems theory, focusing on achieving alignment and the importance of networking, completes part one.

In part two, these ideas are brought together. First, various ways of leveraging knowledge assets are introduced and these are linked to value through value trees. A special chapter on valuation of human capital is included and a detailed description of the authors’ six-stage methodology concludes the section. Part three shows how these ideas have been applied systematically within Lincoln Re, which helps to further clarify the approach. Part four and the appendices pick up on a number of detailed points.

Analysis

As well as the knowledge-valuation methodology, the authors provide a tight and concise introduction to practical knowledge management, financial management and systems theory. This conciseness sometimes gives it a slightly ‘old-fashioned’ feel, but the ideas build in a systematic way and the elements combine together to produce the structured valuation methodology that sits at the core of the book.

A number of companies already use such methods internally – there is nothing revolutionary here. If you had to build a knowledge-valuation methodology from scratch and knew about decision trees, systems thinking and knowledge management, something like this is inevitably what you would produce. However, the authors have done this, refined it, proved that it works and have published it in a highly usable form.

The book is well thought out and well structured. Each part and each chapter have introductions and bullet points telling the reader what they will learn in that section. Headings are clear and there are many useful tables using consistent terminology. Each point leads on to another later in the book – there are no loose ends. Each chapter also has a practice-aids section, which is supported by material on the CD-Rom enclosed, although the CD-Rom itself is something of a disappointment, being more a time saver than a valuable resource.

Readership

Knowledge Assets will be of most use to internal knowledge managers, mainly because getting full value from the methodology requires a considerable investment in understanding and analysing an organisation. Although the approach would be appropriate for external consultants evaluating large knowledge projects and programmes, it would not be cost effective for smaller projects. However, with experience, a number of short cuts could be envisaged that would make it appropriate even in these cases.

Although there is enough here for more experienced practitioners, the comprehensive introductions in part one would also be useful for relative novices and would give them a highly practical spin on what can often (still) seem a rather woolly subject. If the particular approaches to KM or business change did not match a reader’s preferences, it would also be relatively easy to replace them with the reader’s preferred approaches without compromising the main thrust of the book.

Verdict

The clarity and structure that the book gives to a particular view of knowledge management is itself worthwhile. In addition, this book is probably unique in providing a rigorous methodology for estimating the financial value of knowledge. It presents this systematically and in a form that would be very easy to use as a reference. Further, a disciplined reader, working through the practice aids, would rapidly learn how to apply the approach. The price will deter many (£78.95 on Amazon as this issue went to press), but for anyone serious about justifying KM projects on the basis of the value that they will add and needing to make a financial business case, this book would be extremely useful. It deserves a wider readership.

Steve Hales is managing partner of Insighting. He can be contacted via www.insighting.co.uk