Organizations today are facing an increasingly elusive challenge:
how to effectively manage intangible assets that are, by their very
nature, challenging to manage. Understanding how to measure
intangible assets can help make managing them easier.
Such was the case with a large equipment manufacturer. Executives
had invested in a companywide, Internet-based knowledge management
system because creating a greater exchange of knowledge across the
business was viewed as central to the manufacturer's ability to
continuously improve its products and services.
The knowledge management system seemed to have been working, as
participation was high and growing steadily. Participation by
itself, however, did not necessarily guarantee a strong
contribution to business results. Leaders were asking, "How is the
knowledge management system creating value for the business? What
can we do to increase this value?"
An evaluation was commissioned to document the financial value that
the knowledge management system creates for the business and to
recommend how to accelerate this value.
Evaluation Approach and Results
The evaluation focused on the "communities of practice" within the
knowledge management system. These communities are organized around
a specific business-related topic, such as bolted joints and
fasteners. A community manager oversees the development and
maintenance of the community, controls access, monitors content,
and sends automatic email updates about new material.
Anyone with system access can ask a question or define an issue to
which community members around the world can reply. These replies
continue until the question or issue is resolved. In this way,
employees share their expertise and knowledge to solve complex
technical problems. The system allows problems and issues to be
addressed more quickly and, in many cases, differently, than would
have happened without using the knowledge network.
Using proven measurement methodology (see J.J. Phillips, Return on
Investment in Training and Development Programs, 1997,
Butterworth-Heinemann), the financial benefits produced by these
discussions were documented and qualified. Qualified financial
benefits totaled more than $1.5 million and fell into five areas:
- personal productivity
- productivity of others
- speed of problem resolution
- cost savings
The return-on-investment calculation was based on benefits of $1.5
million and the annualized cost of the knowledge management system
ROI = [(Benefits-Cost)/Cost x 100,
ROI = [($1.5M-$1M)/$1M] x 100 = 50%.
Based on study results, the following recommendations were made to
increase the benefits of the knowledge management system:
- Invest in developing community managers.
- Celebrate successes and highlight accomplishments.
- "Seed" some communities based on business need.
- Expand the knowledge management system throughout the value
- Set standards of operation and refresh communities.