Knowledge Management and Common SenseToday's nugget from the December issue of the Harvard Business Review is consultant Don Cohen's one-page take on how to measure ROI for knowledge management investments. In a nutshell, Cohen argues that
... we have gotten savvier about [measuring net benefits of knowledge management]. We are beginning to understand when to look for a traditional return on investment in knowledge management, when trying to specify a dollar amount is inappropriate, and how to know whether KM investments are worthwhile when you can't come up with a convincing ROI.Cohen's commonsensical observation is based on interviews with knowledge management practitioners at over a dozen organizations in both the for-profit and not-for-profit sectors. An example he cites in the first category projects that lend themselves to calculation of a traditional ROI is the experience of oil companies. They've found that they can tie investment that enables sharing of technical knowledge among drilling teams, with savings on the cost of establishing new wells. The savings come from reducing the number of problems that crop up and from being able to work faster.
In the case of knowledge management efforts that do not lend themselves to traditional ROI calculations, Cohen cites the examples of strategy consulting and basic research. Because such knowledge-intensive activities lead to results that are also affected by a variety of other influences, it is really not possible to tease out an independent role of knowledge management. Furthermore, the benefits of the knowledge management investment may be impossible to quantify in a reasonable way. How, for example, do you quantify the boost to your training company's reputation that comes from publishing solid research on the links between employee engagement and the degree to which training succeeds in upgrading job skills?
Much as I appreciated Cohen's probity in talking about the distinctions between situations in which ROI calculations make sense and situations in which they don't, it was his general recommendation for how to approach the issue of measuring return on knowledge management that made me want to call attention to his work on the subject.
The key to good decision-making regarding knowledge management investments is to specify clearly up front what outcomes you expect. You can then use soft indicators to evaluate whether or not you're getting what you were aiming for. Cohen reports that
Leaders of the knowledge-based organizations that have the most vibrant KM programs ... accept anecdotes about successful (or failed) knowledge reuse, stories of productive (or unproductive) collaborative projects, and surveys of employee and customer satisfaction as the best indicators of value.I would mention that similar use of soft indicators is often the best approach to evaluating training programs.
Labels: Knowledge management