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|How does an organization decide what to spend on knowledge? What is the value of investments in Knowledge Management (KM)? What can an organization do to improve the effectiveness of these investments? Finding answers to these questions isn’t easy because the amount of spending on knowledge typically doesn't correlate with results.
In the private sector, conventional measures of R&D effectiveness - for instance, the amount of spending or number of patents - don't answer those questions or reliably predict market value. In a profit-oriented context, investments in knowledge like R&D or KM are easy targets when firms face quarterly earnings pressure. Cuts can yield immediate increases in profit, but the impact of those cuts on long-term sustainability can be devastating, as Dell, Hewlett Packard and Sony have discovered.
At the other end of the spectrum, some firms, including some of the big pharmaceutical companies, spend vast amounts of resources on R&D only to find that returns on investment are meager even in the long run. Still other firms, like Apple, which spend little on basic research, are able to generate repeated and hugely profitable innovations.
Similar issues apply in the public sector. For example, the World Bank invests more than US $600 million annually in knowledge services, including original data collection, research and technical assistance on topics ranging from education to health, infrastructure, communications, government reforms. In addition, the Bank seeks to promote learning through its project financing, testing new approaches to deliver public services and seeking to understand what works best to alleviate poverty. Should the World Bank be spending more - or less? Could it be getting more value from its investment? Does it have the systems and resources in place to get the best value on its investments in knowledge services?
Ten Principles for Managing Knowledge
To address these questions, it is useful to begin with the basic principles for understanding the management of knowledge.
1. The amount of money that could be spent on accumulating knowledge is infinite: Knowledge is in principle limitless. Any organization could spend its entire resources on knowledge and still not have exhausted the possibilities of accumulating knowledge.
2. Knowledge has no value per se: Knowledge acquires value from use. Vast amounts of money can be spent on storing knowledge for potential use in the future without ever leading to the creation of any actual value.
3. Spending on knowledge has negative value if organization doesn't use it: Knowledge is only useful to those willing and able to learn.
4. Institutional knowledge may serve as blinders to effective action. Practices within an organization which are viewed as institutional knowledge may prevent an organization from getting access to, and using, the knowledge it really needs.
5. The most valuable knowledge increasingly lies outside the organization: The locus of value creation has shifted closer to the ultimate customer and the resulting knowledge can diffuse rapidly. In this world, success comes from:
- Accessing resources and people with know-how, whether those resources and people are outside the firm or within.
- Attracting people and resources to come to you and collaborate in generating more value.
- Accomplishing results based on these knowledge flows, by facilitating partnerships based on collaboration and reliable production.
6. Knowledge can require deep expertise to access it: Just as knowledge can be acquired, so it can be lost. Thus organizations can lose key expertise so that it no longer has the expertise needed to effectively access knowledge they once had.
7. The deep expertise needed to access knowledge can be lost: Decades of outsourcing manufacturing have left many industrialized countries without the means to invent the next generation of high-tech products that are key to rebuilding their economies.
8. The value of knowledge lies in improved outcomes for external customers or stakeholders. Given that knowledge has no value in itself and has value only when it is put to use, knowledge should not be evaluated merely as an output. Instead, knowledge should be viewed as valuable only when it results in an improved outcome for some ultimate customer or stakeholder. In knowledge activities, as elsewhere in the 21st Century economy, outcomes are key, not outputs.
9. What constitutes an improved outcome depends on the organization's strategy: Outcomes must be assessed in terms of the organization's strategy. A knowledge investment that is sensible in an organization with one kind of strategy might make no sense in another with a different strategy.
10. Outcomes need to be measured against the organizational strategy: Nothing can be managed unless and until it is measured. Because knowledge per se has no value in itself, it has to be measured in relation to the strategy it is intended to accomplish.
Particular issues in evaluating knowledge services
1. Mission clarity: For some organizations, the most pressing issue may be the clarification of strategy. Having an unclear strategy has at least two implications for evaluating the management of knowledge.
- With unclear strategies, almost any knowledge activity could be seen as potentially useful to some extent for someone at some time or other.
- The broad set of missions makes it difficult to systematically set priorities among different kinds of knowledge activities. Major progress in evaluating knowledge activities will depend in part on clarifying the mission.
2. Staff expertise: Does the organization's staff have the deep expertise needed to tackle its strategy? In some cases, systematic de-skilling will have depleted needed expertise. The organization will need to consider whether such staff provide the organization with the necessary depth and continuity of expertise and experience, and the management skills, needed for the strategy it is pursuing.
3. Organizational culture shift: Historically, most organizations have seen themselves as being the source of the knowledge which it imparted to its customers; most of the knowledge was seen as coming from the developed countries. As noted above, the locus of knowledge is now much more geographically dispersed, with some key expertise existing only in the so-called developing countries. A question will be whether the organization will be able to shift its organizational culture from one of imparting its own knowledge to one of enabling access to knowledge wherever it may be located.
4. Measuring outcomes flowing from knowledge services: Individual knowledge services can be evaluated in terms of the specific purposes envisaged. If knowledge services are aimed at improving decisions by customers or stakeholders, measures can be used to assess whether they are leading to the intended outcomes. If knowledge services are aimed at generating public goods, measures can be used to assess whether and to what extent those public goods are having the intended outcomes.
("Ten Things You Need To Know About Managing Knowledge," by Steve Denning, forbes.com, May 31, 2012. Copyright 2012 Forbes.com LLC(tm))