Return on knowledge

EDITED BY HELEN ROCHE

Measuring the ROI of Knowledge Management

PUBLISHED BY

Measuring the ROI of Knowledge Managementis published by Ark Group

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By Catherine Boissonnet, VEDALIS Ltd

WHEN PRESENTING a KM strategy or project to management, it is understandable for them to ask whether the investment in the implementation of such a strategy/project will have a positive effect on the company’s performance, especially in terms of important factors like implementation costs and profitability. What is the answer? This is difficult, but it is important to consider what you plan on achieving by implementing a KM project.

One response to the question regarding the return on KM could be that implementing a KM project would have the following significant benefits for the company:

� An increase in the company’s ability to innovate;

� An increase in labour productivity; � An ability to manage the risk of losing

critical knowledge; and � Saving time and reducing the costs of

information processing.

These benefits will be explained in the following sections.

Well defined KM strategies can influence innovation, performance, and productivityMeasuring the return on KM projects is a longstanding issue for KM practitioners. In 2004, the Organisation for Economic Co-operation and Development (the OECD), in collaboration with Statistics

Canada, commissioned surveys in seven countries1 (Germany, Canada, Denmark, France, Ireland, Italy and Japan) to question companies about their use of KM strategies and practices in terms of:

� Rewarding employees for reports on lessons learned projects;

� The adoption of best practices and the development of training manuals;

� Simplifying collaboration between teams working remotely; and

� Integration and knowledge sharing.

The French study selected four KM parameters and integrated these questions into an existing innovation survey. The survey questioned companies on the procedures, conditions, and effects of innovation across the company. A KM index from 0 to 4 was defined from the combination of the following four parameters: culture sharing, employee retention, alliances/partnerships, and written policies.

The French survey was sent to 5,500 companies (with a response rate of 85 per cent) and revealed that, whatever the size of the company, area of activity, or effort in research and development, the company was more innovative if it implemented a KM strategy. This KM strategy also has an effect on labour productivity. The results showed that: ‘KM type companies state they have a culture of knowledge sharing and have higher labour productivity than companies that have not adopted such a KM strategy.’2

Expert analysis 7: Return on Knowledge (ROK)™


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Innovation: KM makes the differenceThe average company has a KM index of 0.9 (see Figure 1). So what are the effects of KM on the propensity to innovate and the importance of this innovation in an organisation?

Results have shown that the transition from 1 to 3 on the KM index – that is, increased use of KM and KM maturity – reduces the time to market of new or significantly redesigned products by 11 per cent. It also increases the impact of innovation within the company’s turnover by 2 per cent. This is one means by which the return on KM can be measured within an organisation and, if it can be shown that KM projects have reduced the time it takes for the organisation to get their products to the market, then this will be seen as an incredibly valuable return on knowledge projects.

Productivity: KM makes the differenceWhat productivity gains can be expected from implementing a KM strategy and

increasing an organisation's KM index? Figure 2 shows that productivity increases when an organisation improves their KM index (in other words, increased KM activity aids productivity).

The transition from 1 to 3 on the KM index improves labour productivity by 9 per cent and increases the company’s operating margins.

Preservation and transmission of critical knowledgeIn 2012 Schlumberger Business Consulting (SBC)3 compared 37 companies within the oil and gas industry in terms of the time required for their experts and engineers to become independent (i.e. ‘time to autonomy’), that is to say, the time it took them to make nonstandard and original technical decisions. The conclusion was that, an ‘innovative’ organisation gains between three and five years of autonomy as opposed to a ‘traditional’ company (see Figure 3). SBC verified that one of the main

Figure 1: Degree of KM and performance in terms of innovation (The Importance of KM in the business sector, OECD, November 2004)

46

5458

6063

13 13 14 1517

0

10

20

30

40

50

60

70

0 1 2 3 4

% Ability to Innovate

Innovation strength

Average: 0.9

Knowledge management index


55

AVERAGE TIME TO AUTONOMY ACROSS DISCIPLINESNumber of years necessary to reach ability level

Time to autonomy is the time required for a company to drive PTPs to make non-standard, original technical decisionsYears to Autonomy

Western IndependentMajorsInternational NOCsNOCs

14

12

10

8

6

4

2

0

Ability to ... Execute assigned tasks

... Choose among several standardized tasks

... Make non-standard, original technical decisions

... Make personnel decisions (recruitment, transfer etc)

6.7

11

8.2

11

Figure 3: Time to autonomy – Time required to reach nonstandard and original technical decisions (Source: SBC O&G HR Benchmark 2011)

00 1 2 3 4

%Average: 0.9

2

4

6

8

10

12

14

Knowledge management index

Productivity gains

Figure 2: Productivity gains

reasons for this increased performance was the widespread use of KM.

Indeed, in the 2011 Schlumberger study,4 they suggest there are four factors which influence the ‘time to autonomy’:

� The investment in training; � The length of graduate

development programmes; � The use of blended learning; and � The use of KM.


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AUS

GBR

ZAF

USA

CHN

0% 20% 40% 60% 80% 100%

Receiving and managing information Using information

(Total professionals – by country)

54%

52%

51%

50%

47% 53%

51%

49%

48%

46%

KM practitioners should consider this when approaching their own KM measurement activities and if possible the effect KM has on an organisation’s employees’ ability to make decisions should be shown.

Saving time and reducing the cost of processing information: What if KM made the difference?Information overloadIn 2010 LexisNexis5 – a leading global provider of content-enabled workflow solutions – conducted a workplace productivity survey among a sample of 1,700 white collar professionals across five countries. Interviews were conducted in the United States (USA), the United Kingdom (GBR), China (CHN), South Africa (ZAF), and Australia (AUS). The study included 300 non-legal professionals and 200 legal professionals in the US, and 200 non-legal professionals and 100 legal professionals in each of the other markets.

LexisNexis found out that: ‘Information overload is pushing white collar workers to their breaking point. White collar workers are struggling to cope with a flood of information which has only grown in size since the economic downturn. The survey findings show how pervasive this problem is around the globe. White collar workers say they are close to the breaking point, and that information overload is taking a heavy toll, both psychologically, and in terms of productivity in the workplace.’

Workers reported that they spent just as much time receiving and managing information as they did using that information which can obviously be very time-consuming (see Figure 4).

Figure 5 further shows the effects information overload has on workers (who find it difficult to concentrate and get their work done). Workers reported that they became discouraged due to the fact that they could not manage all of the information they received.

Figure 4: Receiving and managing information vs using information (Source: ‘International Workplace Productivity Survey White Collar Highlights’, LexisNexis, 2010)


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KM can make a differenceWhat is the solution to this information overload? Knowledge management can make a difference and can have a measurable return for organisations by way of helping to abate the problems associated with information overload. One of the main arguments in favour of knowledge programmes is that they enable workers to manage information efficiently. KM as practiced today is proven and can measure a true return on investment. This can be called: ROK™: Return on Knowledge.

The following sections show how KM, and KM tools in particular, can be proven to have a valuable impact on an organisation and they highlight the ways in which knowledge workers/projects can generate a return.

Developing KMCapitaliseAccording to a Nielsen survey,6 which was reproduced by Gartner and IBM, in most online communities 90 per cent of users are information seekers, 9 per cent of users are occasional contributors, and 1 per cent of users account for almost all of the

contributed work. Without capitalisation, organisations run the risk of losing critical ‘know-how’ which resides in the individual knowledge of its employees. IBM for instance demonstrated in a study by analysing its own internal data, that 7.5 per cent of the information stored within its computers is lost after 3 years, and the value of the personal property stored on personal computers may vary, depending on the sector of activity, from €4000 (within distribution, clothing, and home automation equipment) to €15,000 (in aeronautics, computing, and health).

What is the key message here? It is essential to encourage knowledge workers to raise their level of contribution and develop their hidden knowledge by applying a proactive strategy and by providing the right tools! By increasing the contributors’ rate to 10 per cent, on the basis of an organisation with 250 employees, a shared and long term information gain can be estimated at €107,000 per year.7

Transfer and distributeA survey conducted in March 20128 on behalf of Mindjet with a sample of 1,000

(Total Professionals – by country)

% Strongly/Somewhat Agree

100%

80%

60%

40%

20%

0%

USA GBR CHN ZAF AUS

70%67%67%58%

52%

Figure 5: The Impact of information overload on performance at work


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people working in France showed that a quarter of all received e-mails are not read. The survey also showed that 80 per cent of received information is shared which increases information overload.

By suppressing unnecessary sending and re-directions of emails, the company will save time and create opportunities (that is, facilitate the dissemination of solutions and best practices) which in turn creates value. Based on 250 people, economies of scale and Return on Knowledge (ROK™) can be estimated at €1 million per year.9

Co-ordinate and driveAccording to an IBM study in 201210 only 19 per cent of the survey’s respondents regularly used collaborative technologies to identify individuals with relevant knowledge and skills, 23 per cent to preserve critical knowledge, and 27 per cent to spread innovation more widely (see Figure 6 below).

If you divide by a factor of between 5 and 10 the time it takes to manage your expert networks, based on the people in charge of these missions, organisations can gain 190 days in terms of work value equivalent to approximately €46,000 per year.11

Reduce the cost of processing informationHelp to findAccording to a white paper published by IDC,12 an employee spends 10 per cent of their time searching for information. A good knowledge management tool will allow them to reduce the time to identify the right person or locate useful information and at the same time increase the number of searches accomplished.

By gaining 10 per cent of an employee’s time, on the basis of 250 employees in an organisation, the organisation will save 650 days of work time per year, which represents a value of €160,000.13

Help to ProduceAccording to the same IDC study, ‘knowledge workers’ spend 8.5 per cent of their time to (re)create content. Organisations should provide a KM tool that allows employees to reduce the time to (re)create content and combine them into a single database which allows files to be stocked whatever their different formats.

By gaining 5 per cent in terms of time on the basis of an organisation with 250 employees, the organisation will gain 350 days of work time per year, which represents a value of €85,000.14

Are companies making the right connections?

Enable global teams to work more effectively

Spread innovation throughout the organization more effectively

Preserve critical knowledge

Not much Somewhat To a large extent

Identify individuals with relevant knowledge and skills

41%

46%

49%

55%

26%

27%

28%

26%

33%

27%

23%

19%

Figure 6: Are companies making the right connections? (Source: Working Beyond Borders – Insights from the Global Chief Human Resource Officer Study, IBM, 2012)


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Gains per year for a 250 person knowledge network

Knowledge Valorisation

Capitalisation 107 k€

Transfers 1,000 k€

Coordination and piloting 46 k€

Subtotal 1 1,153 k€

Cost reduction by using information

Find 160 k€

Produce 85 k€

Distribute 190 k€

Audit 100 k€

Subtotal 2 535 k€

Provisional total gain per year 1,688 k€

Provisional total gain per year for person 6,750 k€

Figure 7: ROI calculation as per the IDC study

Help to distributeThe IDC white paper also reveals that 8 per cent of an organisation’s workers’ time is devoted to disseminating information across multiple channels and applications. If the company provides a tool that diffuses and automatically multi-indexes information within multiple networks based on the recipients profile and without changing the environment they can gain work time. For example, by gaining 15 per cent in terms of time, on the basis of 250 employees, the organisation will gain 780 days of work time per year, which represents a value of €190,000.15

Help to auditFinally, the study shows that 12 per cent of working time is spent on managing versions and the historical data related to important documents. KM should be encouraged to reduce this time and organisations should be willing to provide a tool that ensures exchange traceability,

archiving of content versions, and guarantee latest information availability.

By gaining 10 per cent of time on the basis of 250 people, the company will gain 410 days of work time per year, which represents a value of €100,000.16

ConclusionUsing the calculations above and the identified areas where KM can prove a valuable return, knowledge management practitioners can create a table to show the gains in terms of ROI (or ROK™) as follows:

Based on the example shown in Figure 7, and based on the IDC study figures, the following results could be reported:

�€5,000 to €7,000 per knowledge worker per year;

� Significant qualitative results; and � Productivity gains equivalent to €1.6m per year based on 250 employees working within a performing network.


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(Note: the calculations given in Euros here can be adapted for different organisations. The calculations are all detailed in the references at the end of the article.)

In conclusion, a brief note on knowledge networks is required. Using the information above and creating a table to show the returns that KM projects and tools can bring to an organisation, management can be told: ‘I have proved that we can potentially obtain significant gains in pursuing a KM strategy. Let’s keep in mind that the ROK factor will be all the more important when our organisation implements and depends on networks centred on structured knowledge. For us, networks and knowledge are inseparable, networks are where knowledge is created, shared, validated, and reused. In other words knowledge resides in the networks, which in turn are the basic principles of social KM.’

What will be expected of these knowledge networks?

� To record, index, and classify basic lessons learned and feedback; and

� To create links and processes for knowledge transfer, for example transfer of knowledge from senior professionals to juniors.

The value of KM, therefore, lies within the network, i.e. value comes from the collective connection of individuals, activities, or processes. Any organisation must take into account the impact of networks on knowledge organisation. They are not only guarantors of the preservation of our knowledge but must also support the numerous opportunities for innovation.

References

1. ‘The Importance of KM in the Business Sector’,

OECD, November 2004.

2. ‘The Importance of KM in the Business Sector’,

OECD, November 2004, p.5.

3. ‘2011 Oil & Gas HR Benchmark’, Schlumberger

Business Consulting (published 2012).

4. ‘2010 Oil & Gas HR Benchmark’, SBC

Institute for Energy Studies (published 2011).

5. ‘International Workplace Productivity Survey White

Collar Highlights’, LexisNexis, October 2010.

6. See: www.nngroup.com/articles/

participation-inequality/.

7. Detailed calculation: Increase of %

contributors x % Information perpetuated x

Number of employees x Value = (10% – 1%)

x 50% x 250 x 9500 = €106,875.

8. See: www.mindjet.com/press/releases/

fr_2012-07-18_enquete?lang=fr.

9. Detailed calculation: {(Increased number of

generated applications x Value generated)

+ [(Decrease in the number of unnecessary

mails x time + % Reduction in the number of

messages transferred x Time)] x Number of

employees x Cost] x Number of days worked =

[( 2 x €1,000) + (2 emails x 1min + 10% x 35

x 10min) x 250 x €35]} x 220 = €1,065,625.

10. ‘Working Beyond Borders – Insights from the

Global Chief Human Resource Officer Study’,

IBM, 2012.

11. Detailed calculation: Number of persons x

Weekly Charge (h) x % Time saved x Number

of weeks = 7 x 4 x 90% x 52 = 1310 h =

187 days and average hourly cost = €35.

12. ‘The Hidden Costs of Information Work’,

IDC, 2006.

13. Detailed calculation: Time spent per week x Time

saved x Number of employees x Number of

weeks = 3.5 x 10% x 250 x 52 = 4550 hours

= 650 days and average hourly cost = €35.


x Time saved x Number of employees x Number

of weeks = 3.8 x 5% x 250 x 52 = 2820 hours



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weeks = 2.8 x 15% x 250 x 52 = 6240 hours




weeks = 2.2 x 10% x 250 x 52 = 2860 hours


Education

Return on knowledge