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Are you getting big value from knowledge?

Roundtable discussion continues

How much value are you leaving on the table when you calculate your ROK (return on knowledge)? Most knowledge initiatives concentrate on traditional return on investment such as productivity gains, cost savings, revenue increase or profit. Those value criteria, while important, are just the tip of the iceberg when it comes to realizing return on knowledge. People often fail to realize the big gains they would find if they simply shift their value perspective to the new thinking about intangibles and intellectual capital.

Early leaders in knowledge management, such as Karl-Erik Sveiby, Leif Edvinsson and Hubert Saint-Onge, also introduced new business models focusing on intangibles or intellectual capital. With good reason. The underpinnings of the knowledge economy are very different--as are the business models that are appropriate. The ways we have thought about value and ROI in the past are still helpful, but are now simply inadequate to explain the workings of a knowledge-based enterprise.

New business models and a knowledge focus go hand in glove. In truth, one really doesn't even make sense without the other. Yet, most knowledge practitioners have not taken the trouble to understand the thinking about intangible value or to learn the language and concepts. As a result they fail to communicate the really "big value" that can be realized from a knowledge focus, concentrating instead on the "little value" of financial return alone. Not being able to speak the language of intangibles means missed opportunities to educate managers about the new business realities that support paying attention to knowledge in the first place.

Take an example of installing software for a customer service help center. Such an undertaking can be (and usually is) justified in terms of productivity and time savings for help desk workers. With some calculation, that can be demonstrated as a cost savings for the center and a ROI for doing the project. As a side benefit, one might note that customer satisfaction would increase. But what would happen if a company took the customer relationship more seriously by treating it as an actual corporate asset? Then customer satisfaction or loyalty measures actually can be recast as indicators for intangible asset management. That would be the big value return for focusing on customer knowledge exchange, not to improve help center productivity alone, but to increase relationship capital (sometimes called customer capital) for the firm.

Most managers are ill-prepared to think in terms of intangibles. That is where real opportunity lies for knowledge professionals. We certainly might begin by demonstrating traditional return on investment advantages for focusing on knowledge. However, if we want big value, we need to think in terms of intangibles and invite managers to come with us into the new world of value for the knowledge economy.

To manage intangible assets more deliberately, new corporate scorecards and indexes are popping up, such as Balanced Scorecards and Intellectual Capital Indexes. Some approaches even measure a company's reputation as a good citizen or view its environmental practices as real assets (what some companies, such as Shell Oil, refer to as the triple bottom line). Accounting standards bodies such as the FASB and policy-making groups such as the SEC in the United States and the OECD in Europe are taking intangible measurement seriously. When we take a close look at all those efforts, it is clear that there is an emerging global business model regarding intangible assets that is both compelling and widespread. A real breakthrough in business thinking is occurring when intangibles are counted as actual assets (or real wealth at the macro-economics level. Measuring and valuing intangibles is clearly an emerging management discipline and one that any knowledge professional needs to master.

So, in terms of "big value," what types of assets does knowledge sharing and use help build for the company? Most people thinking about intangibles and intellectual capital talk about building assets in the following categories:

  • • external relationship capital--alliances and business relationships with customers, strategic partners, suppliers, investors, regulatory bodies and government groups.
  • • structural capital--systems and work processes that leverage competitiveness, including IT, communication technologies, systems and software, databases, documents, images, concepts and models of how the business operates, patents, copyrights and other codified knowledge.
  • • human capital--individual capabilities, knowledge, skills, experience and problem-solving abilities that reside in people.
  • • social capital--the quality and value of relationships enjoyed with larger society through the exercise of corporate citizenship as a member of local, regional and global communities.
  • • environmental capital--the value of one's relationship with the earth and its resources as understood through calculation of the true costs of resources consumed by an enterprise or economy and determination of equitable exchange or contribution to the health and sustainability of the environment.

So how do we begin to translate knowledge initiative into those terms? It means first of all starting to work up your ROI in terms of both hard assets and financial gains as well as intangible gains. Can you demonstrate that your knowledge approach is helping to build intangibles? Is your knowledge project helping to build structural capital by improving work processes and creating powerful new ways of working together? Are you helping to build external relationship capital by strengthening knowledge sharing with customers, suppliers and business partners? Are you helping to increase social capital through building community for the company? What measures would help you demonstrate increasing, enhancing or better utilizing intangible assets?

The power of the intangibles perspective is that it illuminates aspects of a business that have never been visible before. Just as process mapping illuminated inefficiencies in workflow, these new ways of measuring intangibles allow us to accelerate value creation by seeing assets and inefficiencies that were previously not only unacknowledged, but also probably poorly managed. Bringing an intangibles focus to knowledge initiatives helps you find the big value that is too often overlooked.

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