The "KM ROI" question – problem or opportunity?

Your manager comes to you and says “I like the idea of Knowledge Management, but you have to give me an ROI figure”. Is this a problem, or an opportunity?

At first sight this is a problematic request, as the ROI for KM is notoriously difficult to predict. If your manager wants you to sell KM on a firm ROI prediction, you have some difficult thinking to do (we can help).

However there are five things that make this question into a real opportunity for your KM program.

1) Top Management are talking to you. You have access to them, and they are listening to you. A conversation with senior management has opened up. As a KM sales person, you need to make the most of this, and you need to determine the selling point for KM.  ROI will not be the selling point – most firms buy KM on emotion and not logic – but management will still need a convincing ROI to justify the purchase.

2) You have the opportunity to show them some success stories which demonstrate a very high ROI. KM can deliver fantastic ROI – our October 2012 Newsletter gives many examples of KM ROI and how it can be measured, and this blog has published a regular series of quantified success stories, with 117 examples to date. There is plenty of evidence you can show them from industrial organisations where KM has paid back its investment ten-fold or a hundred-fold, and plenty of success stories you can use as social proof.

3) You have the opportunity to make a deal with them.Ask them for permission and support to pilot knowledge management in one part of the organisation, and to measure the return. You promise them ROI from the pilot, and if this ROI is big enough, you ask them for their continued support in return.

4) You have the opportunity to offer to use KM to solve some of their real problems. Don’t forget, KM works extremely well when applied at senior level – its not just for the frontline staff. Senior managers are knowledge workers too. If you can solve their problems through KM, they will become your greatest advocates.

 5) A big ROI gives you permission to ask for a big budget. Once your management realise how valuable KM can be, then they are more likely to make a sizeable investment. This could be the chance you were looking for to build a proper KM program with a good chance of success.

So look on this request as an opportunity to engage, and broker a deal, at the highest level.  Your aim should be to gain support for a business pilot, through which you can demonstrate ROI, and if that ROI is convincing enough, to gain further support for full KM roll-out.

The ROI conversation could be the best opportunity you are given to progress KM. 

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Why your knowledge gets $14 richer every day.

The knowledge you gain each working day is worth about $14, according to an anslysis of salary increases.

People often say “you can’t value knowledge”

In a strict sense, that is probably true, but there is a proxy for the value of knowledge, and that is how much a knowledge worker earns. As Larry Prusak said

“When I was at my last job, at the age of 50 they paid me 10 times more than a 30-year old with the same qualifications. What was the residual difference? Knowledge and experience”.

The chart to the right is drawn from the ASME Engineering Income and Salary Survey 2012 and shows how average engineering salaries increase with years of experience. Each year of experience seems to equate roughly to an added $2750 in salary per year, or $14 per working day. This “value of experience” is a proxy for the value of knowledge, because experience is where knowledge comes from.

Here are some other numbers

  • This site suggests that the market value of actuarial knowledge is $7960 per year of experience.
  • This site suggests that the market value of office worker knowledge is $4467 per year of experience.
  • This site suggests that the market value of Information Architecture knowledge is about $6000 per year of experience.

There are other sites out there that can give you other figures, but the phenomenon of the salary increase is all-pervasive – as you gain more knowledge and experience, you are worth more.

You can value that knowledge through the sorts of statistics shown here. A good knowledge worker might gain knowledge worth about $3000 in salary per year, or about $14 per working day.

Worth going to work for, wasn’t it!

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Good, cheap, fast – choose all three

There is a well known saying; “Good, Fast, Cheap – pick any two.” It’s wrong.

The idea behind this saying is that there is a certain amount of work to be done to deliver a task, service or product, and that work is bounded by the limits of cost, time and quality.

If you try to improve any two of these factors, the third will be impacted. If you want something fast and cheap, for example, it won’t be any good. If you want it good and fact, it wont come cheap.

It’s like seeing work as an incompressible cube – if you press on two axies, the third will expand.

This is only true if the work really is incompressible. There is in fact a way to make things faster, better and cheaper, and that is the removal of waste.

If there is waste in the body of work, then removal of the waste will alllow all three axes to contract.

This is the principle behind Lean approaches to manufacturing, supply chain and product design, and is also an area that Knowledge Management can help with. Through effective KM, we can reduce waste from activity, and compress the “work cube”.

Good, cheap fast – if you use KM to reduce waste from work, you can pick all three.

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Quantified KM value story number 119 – finding knowledge at Accenture

One of the ways in which KM adds value is through helping poeple do work faster and better.  Here is a story of howAccenture estimated that value.

Accenture make documented knowledge available to their staff through a portal known as KX. IN order to estimate the value delivered through KM they decided to focus on one component of Knowledge Management –the use of KX – and to focus on one single benefit – the savings in time delivered through the use of knowledge gained through the KX portal.

They estimated these savings through a survey, which asked the following question

“Please estimate the amount of your time that you saved during the last two weeks as a result of this knowledge.

“During the last 2 weeks, this information saved me AT LEAST:”
“During the last 2 weeks, this information saved me AT MOST:”

The results from this survey were used to calculate average time savings, and thus average cost savings.  They found that for annual KX costs to the sample population of $170,000 they were delivering savings of $2,400,000.

This equates to a 2500 percent Return on Investment

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Quantified value story number 118 – saving patient cost in healthcare

Here is a reference to a great story about the value of simple KM in healthcare

The story is taken from a California State University blog on KM, and references an earlier Times Magazine story, available to subscribers. The Time magazine is ostensibly about doctors’ pay, but also describes how sharing and institutionalizing good practices (although they don’t call them that) can significantly reduce costs, improve outcomes for patients…and keep doctors happy.

The blog quotes the following example of a very simple KM practice, which shows how much difference even a best-practice checklist can make (and also how unpopular this was, until it began to deliver benefit).

The first thing he (the head of surgery at Geisinger) and his team did was take 20 general steps all surgeons follow throughout a bypass episode and try to sharpen them in a way that would remove as much chance and variability as possible, going so far as to spell out the specific drugs and dosages doctors would use. The result was an expanded 40-step list that some surgeons balked at initially, deriding what they called “cookbook medicine.” 

Once doctors began following the expanded checklist, however, they grew to like it. After the first 200 operations — a total of 8,000 steps — there had been just four steps not followed precisely, for a 99.95% compliance rate. A total of 320 bypasses have now been performed under the new rules. 

“There are fewer complications. Patients are going home sooner. There’s less post-op bleeding and less intubation in the operating room,” says Casale. What’s more, the reduced complication rate has cut the per-patient cost by about $2,000.

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Why its important to convey the value of Knowledge Management

The most important thing you can do for KM within your company, is help people to understand the value. 

I often say that “knowledge management is how people would manage their organisations if only they knew the value of their knowledge”.  If they understood the unrealised value of the knowledge assets they already hold, they would willingly invest in that value. And if they understood the value of the knowledge they risk losing, they would invest in retaining it.

If you know what something is worth, you know you need to look after it. If you don’t know what its worth, you don’t treat it with due care.

Organisations which apply knowledge management really well, report huge value. Mars, with their billion dollars of knowledge-enabled value, Texas Instruments with their “free fabrication plant” through KM, Shell with their $200m value per year.

The value is delivered through giving people access to better knowledge, so that they can make better decisions. Knowledge can be transferred from good performers to poor performers, or carried forward from one project to another, in order to improve business results. If you know the value, you can justify the investment.

In one drilling program, we anticipated that KM could save in the order of $100m (in the end, we saved $83m). So when management challenged investment in three full-time learning engineers, the KM team were able to justify this investment by pointing to the scale of the potential savings.

So an early exercise for you to undertake in your KM program is to estimate the “size of the prize” that KM could bring.

Once the senior decision makers understand the value that KM can bring, and the size of the potential prize, you will find it far easier to get support!

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Quantified value stories in KM – numbers 115, 116 and 117

As part of our series of stories and examples of quantified value from KM, please find below three examples from a 2015 article in the UAE National, entitled “Knowledge management is power for companies”

An example of KM in action is the case of El Paso Corporation – a 5,000-employee North American provider of natural gas and related products. To maximise the benefits of a new organisational structure and encourage communication, El Paso decided to try a KM programme focused on business opportunities and challenges. Its aim was to foster expertise within the workforce and share technical knowledge with a scorecard used to measure and report on the programme. Its elements included: savings, improvements, successes, costs and milestones. In the first year, the goal was to save the organisation US$500,000, but it delivered $1.2 million in savings.

“A recent best-practice transfer between KOC and other k-Companies in Kuwait, where technology and know-how have been transferred between companies resulted in savings of several million Kuwaiti dinars,” (Abdul Jaleel Tharayil, project leader of Knowledge Management Practice for Kuwait Oil Company) says.

“Another example is an internal collaboration between deep drilling and development drilling, which brought forth a reduction in non-production time by introducing a change in casing design, leading to savings of around 250,000 dinars.”

The Kuwaiti Dinar is currently worth about  3.3 US Dollars.

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If organisations treated money like they treat knowledge …..

What would it be like if organisations treated money the way they treat knowledge?

This is a simple thought experiment, which you can use with your senior managers to get them to think differently about knowledge. We know knowledge is an asset, we know it has value to an organisation, but compared to a different asset – money – we treat knowledge in a naive and unthinking way.

If we treated money like we treat knowledge ….

  • We would allow people to hoard company finances and not share company money with others, just as we allow them to hoard knowledge;
  • We would have no single company bank account, just as we have no single knowledge base;
  • Even if we had an account, nobody would manage it or monitor it;
  • If we wanted to draw on company money, it would be as hard to find as company knowledge;
  • People would treat company money as their own property, just as they do with knowledge;
  • We would not create any budgets for our activities and projects, just as we do not do any knowledge budgeting;
  • If we wanted money for our projects, we would assign rich people, in the same way that we assign knowledgeable people as the default way to access knowledge;
  • If we created new income from a project, we would leave it in the pockets of the project team, just as we leave knowledge in their heads;
  • If someone left the organisation, they would take a whole stack of company money with them, and there would be no attempt to retain this money, just as there is no attempt to retain the knowledge;
  • We would see it as a sign of weakness to ask for money;
  • In fact people would be suspicious of money from others – “Not Earned Here” as a parallel to “Not Invented here”;
  • We would not report any financial data to senior management who would have little idea of the financial wealth of the organisation (do they know the intellectual wealth?);
  • We would have no roles specifically for the management of money – no financial departments, no CFO, no accountants;
  • We would have no processes for managing money – no planning, forecasting or accounting;
  • We would have no technology for tracking money;
  • We would have no financial policy, or guidelines, or rules, or expectations;
  • In short, we would have no financial management at all.
Once you have gome through this experiment, ask your managers how much value would be lost if we treated money in the same way we treat knowledge, ask them how much value is currently being lost through unmanaged knowledge, and ask them

isn’t it time we treated knowledge management with the same level of attention we treat financuial management?

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How communities of practice can help reduce staff turnover.

There are many ways in which Communities of Practice add value to an organisation, 27 of which are listed here.  Here is a 28th way.

There is a really interesting analysis of Communities of practice from the Geneva Knowledge forum which looks at CoPs in several large multinationals, and which points out some of the softer benefits. For example, CoP members can get the following personal benefits:

  • the thrill of participating in an exchange of ideas with like-minded colleagues who share a common interest and skills, resulting in a major boost to organisational members’ motivation and satisfaction at work;
  • the feeling of belonging to a group and the particular value of recognition by peers who are perceived as competent judges of one’s own ideas and performance;
  • the possibility of honing existing skills and developing new ones through participation in network activities is an obvious plus for individual performance;
  • networks may serve as a ‘shop window’ for talented employees. 

As a result, network membership not only engages the employee, but also helps the showcasing of individual performance towards an audience that is ‘ready to promote.’

The article quotes the following example from Deutsche Bank

Networks at Deutsche Bank focus on this particular aspect. The company learned its network lesson the hard way. In 2000, the acquisition of Bankers’ Trust prompted an exodus of key investment bankers — taking accounts with them. However, top managers were less concerned by the loss of accounts than by the loss of knowledge, which they feared could potentially have even more severe consequences. After all, the managers who quit the organization had an in-depth understanding of key procedures and they knew best how to manage their customer relationships. 

In 2000, Deutsche Bank decided that merely tracking turnover was not sufficient, so it made explicit efforts to develop an indicator to measure the commitment of key individuals to the company. The reasons individuals left the bank proved the point that best-practice networks are one of the most important tools for tying highly qualified managers to the organization.

View Original Source Here.

Quantified value stories 112, 113 and 114; three examples from customer service

From a blog post called “In praise of Knowledge Management” come the following examples of quantified KM value, all from customer service centers;

Image from wikimedia commons
  • “A leading European mobile phone retailer saw a stark increase in contact deflection of 27.3 percent while markedly improving NPS  (Net Promoter Score) by 12 base points after implementing a knowledge management system”.
  • “One of the largest global insurance providers realised a massive decrease in agent training costs by 50 percent, and a sharp drop of 30 percent in complaints”.
  • “An Australian Government agency saw its customer satisfaction levels surge to 93 percent as well as raise agent satisfaction and reduce handling time by 53 percent”.

The article concludes that “it is these kinds of success rates and improvement which make knowledge management a serious contender for inclusion in any list of top ten contact centre technologies”.

View Original Source Here.

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