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Valuing and managing knowledge

This article appears in the issue March 1998 [Volume 7, Issue 3]

While it may not be possible to truly manage knowledge, it is possible to create a climate and corporate culture where sharing, reusing and leveraging knowledge is encouraged and reinforced.

A sort of Knowledge Yellow Pages--a complete directory of an indexed and cross-indexed knowledge base--can be made available so individuals can order existing knowledge on a one-time or recurring basis. Users can then build a profile of the types of knowledge in which they are interested, and through the use of intelligent agents, they can order and receive it for as long as they need it (the need may be project-based and therefore temporary). The knowledge can come in the form of video clips, organized and analyzed information, voice recordings, electronic documents, images and so forth.

New organizational structures must be developed to manage the new knowledge asset-sharing paradigm. As Einstein said, "We must invent new ways of thinking to correct the problems created by old ways of thinking." That means that organizational structures must be flatter, more egalitarian and more dynamic than has been the case with the standard, militaristic hierarchical structure, adopted for business use centuries ago. The new structures must be more distributed and globally optimized with some characteristics of matrix organizational structures to allow for cross-functional, project-based teams. With all the technological and economic developments of today, isn't it about time for some new thinking?

There is risk in making all this information available, but also benefits. In one U.S. hospital, the error rate of physicians was four times the national average. So the CIO began electronically publishing the specific error rates of individual doctors. And what happened? Within 90 days the error rates normalized around the national average. Whether that was a result of physicians sharing knowledge of treatment courses and outcomes or just pure embarrassment by the worst offenders is open to conjecture.

The case demonstrates how potential liability was dramatically reduced by simply providing access to knowledge that existed within the organization. That ultimately translates into bottom-line benefits. So with available KM tools, tangible benefits can be obtained.

But how can the value of knowledge management be quantified? Should it be reflected on the balance sheet as an asset? What formulas should be used to calculate its value? Accountants are reticent to place a value on anything that cannot be physically counted.

And how can accountants place a value on KM when KM is still being defined? Its definition is evolving and is not concrete like retained earnings. Perhaps its real value can only be calculated when its impact shows up on the income statement. That, the financial gurus may argue, is the only true value of KM--when it hits the bottom line


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