Originally published November 12, 2015
At KMWorld 2015, a knowledge café was held with multiple tables, each with a sign listing the topic for discussion at that table and an assigned mentor. Mine was “Enterprise Social Networks,” which was popular, but I noticed even larger crowds at the table hosted by Kate Pugh for “ROI of Knowledge Products & Services.”
A lot of requests were posted in our enterprise social network either mentioning ROI (Return on Investment) or tagging the post with #ROI. For example, “We were asked by an important client to present KM ROI data.”
The subject of how to compute the return on investment for knowledge management, enterprise social networks, collaboration, and social media has been around since the start of each of these fields. My view is that it is important to define and communicate the benefits of these programs, and measure and report on progress, but that proving ROI should not be the point.
It’s possible to compute the ROI of a narrowly-defined project requiring capital investment, such as building a new plant or buying a new piece of equipment. But for broader programs which integrate people, process, and technology components, and work with other broad programs such as learning, talent development, and finance to improve the effectiveness of the organization, ROI is ill-suited.
“What will be the ROI of your KM program?” is the wrong question. Better questions include:
- Why should we implement a KM program?
- What are the benefits?
- How will it help our organization accomplish its key objectives?
- How will our organization improve as a result?
- How will our people’s needs, opportunities, and challenges be met?
Do we ask what the ROI is for the human resources or finance departments? What about the ROI for the email or phone systems?
For example, if we were to eliminate the HR department because its ROI is too low, what might happen? From The 5 most dangerous legal mistakes HR makes, here are three potential problems which could arise by leaving personnel administration to the individual managers:
- Wrongly classifying certain employees as exempt from the Fair Labor Standards Act and, thus, ineligible for overtime pay
- I-9 form mistakes
- Messy firings — the biggest cause of employee lawsuits
Having trained professionals in the HR department can help avoid these and many other costly errors. But computing the ROI on preventing lawsuits is not possible.
So what should we do instead of focusing on ROI?
1. Make a logical case for how the initiative will help achieve the key business objectives of the organization. For example, if the top three objectives are increasing profits, accelerating sales, and improving customer satisfaction, explain how the elements of the program will have a positive impact on these. If profits increase, sales accelerate, and customer satisfaction improves, and there is a rational explanation for how knowledge management supported these results, then take partial credit. On the other hand, if the business results are not achieved, then the fact that KM did well will not likely be well-received. You can try to argue that things would have been even worse without KM, but that would be a hollow victory.
2. Establish a plausible scenario and then extrapolate the benefits. For example:
- If we save one project from repeating the same mistakes as previous projects, that could save $2 million, which will more than pay for the program. If we repeat this, the impact on profits is very large.
- If by responding quickly to an opportunity with a proven solution using acknowledged experts, we win one $10 million project that we otherwise would have lost, that’s incremental revenue of $10 million. If we repeat this, the impact on revenue is very large.
- If by ensuring that the best engineering product knowledge is reused, we avoid one product recall, we save the company hundreds of millions of dollars.
This type of business case can be very persuasive. Note, though, that it is not a strict ROI analysis. You can’t prove that the sole cause of any outcome was KM, and you can’t prove that a costly recall was avoided if it never happened. But you can point out that the probabilities of positive outcomes are significantly increased through KM.
3. Choose the most relevant benefits from 15 Knowledge Management Benefits and ask the program sponsor to confirm that these are the right ones. Tailor your efforts to achieve these desired benefits.
4. Define the most painful problems that knowledge management can help prevent, such as:
- Product recalls
- Injuries or deaths
- Unprofitable products and services
- Low employee morale
- Lost customers
- Damage to the brand
- Inability to attract or retain talent
- Diminished productivity, revenue, growth, profit margin, shareholder value
- Becoming a takeover target
5. Before launching a program, tell stories that show the value it will provide. After the program starts, tell stories of early success, As the program matures, document wins using the voices of actual users.
6. Define relevant metrics for all stated objectives, and report regularly on performance against those metrics. Pair operational metrics with business impact metrics and correlate good performance in the KM program with good results for the business. Measure the benefits of your KM efforts.
7. Make a sound business case. For example:
- Do we want our people to be able to readily find deliverables from previous projects so that they can reuse them, and people who can provide useful advice on how to deliver the next one?
- Do we want anyone who has a question, seeks a resource, or requires help to be able to easily, quickly, and reliably get what they need?
- Do we want to avoid redundant effort, repeating the same mistakes over and over, and keeping important information from reaching the very people who need it?
8. Work with analytics experts, statisticians, and academicians to produce correlations between desired knowledge-sharing actions and desired results, including employee advancement, project success, and financial results. For example, Kai Riemer of the University of Sydney has a forthcoming paper which states “a range of empirical studies in organizations have shown that this type of social capital is associated with better individual performance evaluations, greater promotion chances and higher compensation payments as well as an increased team performance”
9. Do a one-time study to show the business benefits. Caterpillar commissioned a one-time study by an independent consulting firm to identify the benefits and ROI for two established communities of practice: Joints and Fasteners and Dealer Service Training. The results were:
- Qualitative ROI: Productivity (up 40%), Cost (reduced 25%), Speed (up 15%), Quality (up 4%)
- Tangible ROI: 200% for internal CoPs; 700% for external CoPs
Based on these results, the Caterpillar KM program was justified. There is no need for ongoing collection and reporting of ROI, since it has been done once.
10. Read and consider applying the ideas expressed in the following articles, posts, and books.
“More and more frequently I hear calls for proof of the “ROI” (Return on Investment) of knowledge management. I hear it within my own company; I hear it from KM practitioners in other companies; I even hear KM consultants espousing the importance and benefits of calculating ROI to demonstrate knowledge management’s contribution to the business bottom line. This concerns me. Not because I don’t believe KM has value — it obviously does! — but because ROI is a specific type of business measurement that overemphasizes the direct-to-bottom-line component of KM while completely ignoring (and discrediting) the rest. KM certainly contributes indirectly to the bottom line, as it contributes to many other aspects of the company’s fiscal and intellectual diversity and health. But that is not its primary goal. This call for ROI is part of a larger tendency within corporations today to “align” KM with business operations. By that I mean making KM a tool used by business management to ensure the optimal and efficient exercise of business processes.
Now, I have no objections to KM supporting business processes. Clearly, that is the primary use of knowledge and the company wants to encourage anything that contributes to the bottom line. But that is not all that KM is about. KM also significantly contributes to the breadth of knowledge, experience, and expertise of its employees. It contributes to the resilience and responsiveness of the company to changes in the business environment by strengthening its core intellectual capabilities. It impacts business processes both direct and indirect. And it establishes a culture and channels for distributing business intelligence at lightning speed. The problem is the measuring. Managers don’t measure things for intellectual stimulation. They measure them so they can make changes and confirm the results. Managers also tend to think high-level. If ROI is what you are measuring, then that is the goal (not a goal, the goal). That is not a slam against managers, it is just an attribute of their job: to think clearly and succinctly and not get bogged down in details.
The results, if you are not careful, can be both dramatic and unfortunate. The analogy that comes to mind is college. If you see the goal of college being to get a job (your ROI), then there really is no need for English, history, languages, or even science — depending upon your target profession. However, if you see the goal of college as expanding your knowledge and broadening your character, not only will it have a strong indirect impact on your employability, but your opportunities will be far more flexible and adaptive to the business environment when you graduate. Business opportunities fluctuate on a cyclic basis. At one point, there was a strong need for engineers. But if you went to school specifically for that career, the market was pretty much saturated 4–5 years later when you graduated. Ditto MBAs and other focused degrees. I pity the poor Cobol programmer trying to break into the web era. Or Algol, PL/1, Pascal… So just as the goal of college is to teach capabilities, not specific skills; the goal of KM is to facilitate knowledge development and transfer, not solely to apply knowledge to the product pipeline.
The success or “return” of a KM program is the cumulative benefits — both short and long-term on the company and its employees. This is a very hard concept for line-of-business managers to grasp. They understand it when they feel its absence — the recent rebirth of KM within American companies runs a parallel course to the enthusiasm for the business fads of downsizing, rightsizing, and outsourcing in the late 80’s and 90’s. Many companies followed the trend only to find that the intelligence of the corporation had left with its employees. The need for knowledge management became apparent. I believe it is the responsibility of KM professionals to avoid the rush to ROI and make sure both the direct and indirect “returns” of KM are recognized and re-established as objectives.”
2. Selling KM: Lessons from Experience from Richard Cross
“Never trust someone who says “Show me the ROI” or “You can only manage what you measure” Anthropologists maintain that in every culture there are apparently rational questions that mask hostile intent. “Show me the ROI” or “Yes, but how do you measure it?” generally fall into this category. When confronted with these types, start to get alarmed. The most important point I recall from my sales training is that a customer’s concern in a complex sale is risk. According to my sales training mentor, Roger Sugden, consequences (risks of going ahead with you) must be managed. Most lurk behind the surface. Roger also emphasized that difficulty stating, quibbling over minor points (like the pantone color of a slide), asking for demonstrable ROI, and jargon bashing (we offered TQM training at that time) could also be early warnings on risk, customer insecurity, and lack of their (or your) credibility.
Price concerns and guaranteed ROI then become respectable and convenient ways to express concerns over consequences. It’s easier for people to tell you that they have decided not to buy because of these issues than to explain issues such as mistrust, scars from mistakes made before, politics, hassle, not interested, risk to career or company, or the simple fact that they don’t like you. Consequences are psychological issues in a person’s mind. They are not in the real world — only the customer can resolve them. In selling KM and TQM, Roger would advise me to help the customer, not resolve the problem on his behalf. He would also say to get the real concerns out in the open, and look to develop trust rather than engage in futile intellectualizing about ROI.
In an AOK dialogue hosted by Jerry Ash, Hubert Saint-Onge concluded that “I fully subscribe to the need to measure all that can be measured but I don’t believe that you can only manage what you can measure. As a matter of fact, I find this one of the most mindless dictums to ever be uttered by people who appear to be otherwise reasonably coherent.” My bottom line: the purpose is to improve, not prove.”
“Leaders of the knowledge-based organizations that have the most vibrant KM programs approach the measurement problem by accepting soft indicators that knowledge management is earning its keep rather than demanding hard numbers that may be misleading. They do insist that the programs be evaluated, but they 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. They realize that a telling anecdote is a better “measure” than a precise but irrelevant number. Knowing what you’re striving for with your knowledge management makes it much easier to determine whether you’re getting value for the money spent — even if the ROI never shows up on a balance sheet.”
“Next to “What is the meaning of life?” perhaps the toughest question we KMers get asked is “What’s the ROI (return on investment) for all this KM stuff?” At the project level, it’s rather straightforward. You can measure what goes in and what comes out (efficiency and effectiveness). You can compare the results before your KM pilot initiative and after, and take it from there. Justifying KM to promote fast learning and innovation enterprise-wide is another matter entirely.”
“I can remember the second year of BP’s KM program some years ago, when we were asked to demonstrate $100m of business value through the application of KM approaches and tools. We did this by asking senior managers, directors and VPs who had been applying KM tools (mostly with some support from our team) for anecdotes and stories with $ value attached. Many of them did and when we passed the $250m barrier we stopped counting. Was it scientific? No. Did it comply with Generally Accepted Accounting Principles? No. Did they have credibility as stories? Absolutely yes — because of who was telling them. Did the stories inspire others and give momentum to what was going on? Definitely. However, one senior VP in Mergers and Acquisitions refused to be drawn on the specific contribution that KM had made to a recent acquisition. “It’s a big number” he said, “but it’s in there with the spaghetti…” (meaning, the other approaches that had also been brought to bear on this acquisition). I have a lot of sympathy with that view. Whilst I recognize that we need to be able to illustrate the value that knowledge sharing brings, with compelling examples and stories, my preference would be to commit the minimum time necessary to the activity of measurement. Like that manager — I’d rather than get on with eating the spaghetti than don a white coat and spectrophotometrically analyze the Bolognese sauce.”
“Of course, the problem remains that not all changes can be measured in strictly cash value terms, which is what many people consider to be the true meaning of ROI. I go back to the point I made earlier — how do you measure the value of a conversation or some information shared? The answer is, you don’t, and the sooner that everyone recognises this the better. Measuring impact can be just as important as measuring value. The impact might be things like improved customer satisfaction (measured using surveys), or less time to complete a task, or improved staff morale (measured using surveys). Any of these can — and potentially will — have an effect in terms of cash value to the organisation, but I firmly believe that converting impact to cash value is an exercise in futility, since more often than not, the formulae and algorithms have too many variables. So, in terms of ‘ROI’, think ‘Return on Impact’ rather than Return on Investment when considering Knowledge management strategies, and develop the strategy from the starting point of getting staff to justify the present status quo.”
7. Nick Milton
“Here are the four things that make this question into an opportunity:
- Top Management are talking to you. You have access to them, and they are listening to you. A conversation with senior management has opened up. As a KM salesman, make the most of this (see “selling KM on emotion”).
- You have the opportunity to show them some success stories which demonstrate a very high ROI. KM can deliver fantastic ROI — our October 2012 Newsletter (available here) gives many examples of KM ROI, and how it can be measured, and this blog has published an occasional series of quantified success stories, with 53 examples to date. There is plenty of evidence you can show them.
- You have the opportunity to make a deal with them. See here for how this deal might go. You promise them ROI, in return for their endorsement, example, steer, recognition and challenge.
- You have the opportunity to offer to use KM to solve some of their real problems. Don’t forget, KM works extremely well when applied at senior level — its not just for the frontline staff. Senior managers are knowledge workers too. If you can do this, they will be on your side forever (see taking the thorn from the lions paw).”
“Funding is linked to delivery of projects and projects come into two main categories: safe-fail low cost experiments and fail-safe conventional ones. More fully described these are linked to a specific issue/opportunity/problem where the new concept can be show to have a positive impact on a business process or other objective, and where the impact of that initiative can be measured (either by positive impact or by the cost, opportunity or otherwise of not carrying out the work. ROI, EVA (Economic Value Added) and other accounting measures can work here and you will need to understand them and their application.”
“How to assess ROI for e-learning with these six major business objectives in mind:
- improving productivity
- improving quality
- leveraging human capital
- reducing risk
- remaining in the marketplace
- accessing new markets”
“So when we put up our e-business investment proposals, our e-learning proposals, and our knowledge management proposals, the CEO wants to see an ROI analysis, and the CFO will be doing a surreptitious EVA. All very objective, terribly easy to decide. The trouble is, when you look at them very closely, very few aspects of real-world enterprise actually run on numbers, and ROIs tell you surprisingly little about whether you really should invest — especially once you move outside the ambit of simply buying something. The passion for ROIs, which is often justified in the service of a simple purchase that has attributable profits, becomes positively dangerous when it is used in the service of complex investments, business innovation, capability development, or infrastructure investment — as it happens, all characteristics of e-business, e-learning and knowledge management initiatives.”
“Now I know a number of people have been trying to get organizations to adopt metrics for human capital, intellectual capital and other areas, that are not converted to financial terms. But there is a long road ahead to get them to any sort of level that has them even appearing in Annual Reports.”
“I have lived in a corporate world driven by ROIs, and agree that in that world, proving the value of KM to the organization is essential for funding and support. At the same time, given the current parameters for proving “value” in organizations, it’s impossible to do.
Douglas Weidner, Chairman of the International KM Institute recently said succinctly, ‘if KM can’t prove its worth, it’s worthless.’ I disagree. It is intuitively worthwhile or so many capable, intelligent people wouldn’t be grappling with what KM is and how to apply it for good. It may simply be worthless in a given environment, with a given set of actors, at a given point in time. Just because one can’t prove the worth of something doesn’t mean it’s worthless. It can also mean one is trying to prove the wrong thing or attempting to solve the wrong problem.
There is a fallacy in all discussions of ROI for KM. As long as accounting systems (and financial managers) reject the so-called ‘soft’ or intangible values of KM and treat KM like they treat software or a new piece of equipment, the true ROI of KM will never be shown or appreciated. How can you value or assess the worth of KM without talking about improved morale, reduced employee turnover, employee satisfaction, better information flow throughout the organization, personal pride, more knowledgeable employees (who give better customer service), stronger affinity networks, brand enhancement, cultural change, improved communication, team building? Until there’s a way to get those kinds of things counted toward financial value, ROI is a meaningless discussion in relation to KM.
KM is not a manufacturing process with people substituted for widget inventories in a financial spreadsheet. It is certainly possible to attach traditional metrics to each intangible identified, and they can even be shown to increase revenues or reduce costs — though some of the metrics would be a stretch, rather like Cinderella’s ugly step sisters squeezing into the glass slipper. It’s simply wrong. Organizations are not good at recognizing or valuing intangible benefits. Even if it were possible to break down all the components of KM and attach traditional (i.e., ‘accepted’) measures to them, the result would still not reflect the true value of KM, because KM is more than the sum of benefits from existing processes.
As John Maloney points out, ‘ROI is a trailing accounting indicator. Return on Investment (ROI) is the ratio of money gained or lost on an investment to the amount of money invested…(a better way to measure) is value network analysis.’ I agree. And even though it’s an uphill battle, we shouldn’t stop trying to prove its value.”
Social and Collaboration
1. Luis Suarez
“We need to stop paying for the circus and get down to action. The real action. So, who wants to jump the shark and move into the 21st century to become a successful Socially Integrated Enterprise? This is your new ROI: start by improving the client experience through the employee experience. The rest is just a distraction and one that should be avoided. At all costs.”
“If social computing is supposed to revolutionize the way we share our knowledge, connect with others, collaborate, communicate and innovate, then I think it is about time we move into the 21st century, progress further in that Knowledge economy and try to figure out how to get the most value out of it, because figuring out its ROI, in my opinion, is going to be a waste of time, energy and resources.”
This post by Luis prompted a response:
“The assumption is that ROI is always about payback. While that is often true, you need a value figure with which to develop the calculation. Forrester has already tripped up over this one, concluding, as do many others, that the benefits (are these the same as value?) are “soft” and therefore difficult to measure. The fact something is difficult is not an excuse yet this is how ROI is positioned.”
which Luis replied to:
“If ROI wants to make a stand in the world of Enterprise 2.0, it needs to evolve. It needs to progress further into becoming ROI 2.0 (Yes, I know, you saw that coming, didn’t you?) and stop thinking that the only thing to measure the intangibles is following the same approach as with tangibles, because that is going to fail. It has for the last few years with traditional KM and I am sure it would fail again, again and again. We now have a precious opportunity to make things different; this time around with how social software is taking by storm the corporate world, getting everyone excited, once again, around the subject of knowledge sharing and collaboration (Not sure about you, but it was about time!). So let’s try not to repeat KM history again by making the same good old mistakes we have all along.”
- Commenting further on ROI and Social Computing — Part I
- Commenting further on ROI and Social Computing — Part II
“So how do we end this social ROI chaos? As the industry continues to publish ROI studies that claim to capture true financial gain, we are perpetuating the ancient methods of technology evaluation that force us to put dollars and cents on every decision. We continue to treat “social” as if it’s about technology and not people. It’s time to escape from the circus by focusing on the myriad intangible benefits of an enterprise social network, advocating that instead of seeing social as a way to get more out of employees, companies should be modernizing their communication channels to give employees choice and freedom. If we stop selling tickets to the social ROI sideshow, nobody will come. And if we want enterprise social networks to flourish and grow universally, it’s time to stop pretending that we can measure their ROI.”
“ROI of collaboration is an old and simple measure and not good for measuring complex processes or interactions. Collaboration at its core is a type of social human behavior. A behavior in which 1 + 1 = 3 where we become more than the sum of our parts. Collaboration is an “emergent characteristic” and these emergent characteristics are always a part of complex systems. It should be possible to determine the value of a simple interaction (A talks to B, and B answers A). But human networks of relationships grow at Nn (where N is the number of relationships), and it is this inherent complexity of human interactions that ultimately confounds the simple ROI metric.”
“More success stories will emerge over time. The examples will proliferate and executives will slowly become used to seeing the stories and accept that they can improve their business. If they are smart, they will take both the culture and problem in need of a solution into account first. The industry will hit a tipping point. Social business will become the way that successful companies do business. Like email before, ROI will not be needed, but it will be plentiful. By then, we’ll be looking to find the ROI on the next phase of collaboration.”
“The TEI framework centers on quantifying benefits, capturing costs, evaluating flexibility, and adjusting risk: Benefits (Impact on Business), Costs (Impact on Budget), Flexibility (Options) -> RISK -> Total Economic Impact”
“The inherent problem explained above renders the question, “What is the ROI of Social Media?” quite ridiculous. It’s asking for financial metrics to explain efforts that were not focused on driving financial metrics. So what’s the better question? There are still plenty of awesome business goals you can accomplish using social, right? So instead of asking about money, ask a more broad question: What do I get in return?”
“The cost savings are so many millions a year that GE, despite being a famously metrics driven company, doesn’t require an ROI justification model for SupportCentral budgeting. As CIO Gary Reiner said in a recent Fortune interview, SupportCentral ‘is becoming…the heartbeat of the company.’ “
“It occurred to me that the ROI question so often asked about social computing is back to front. It is asked because people have been conditioned to think that social computing is something that we have to make happen in organisations. They are trained by vendors to expect to pay obscene amounts of money for overpriced, over-engineered, process driven, time-wasting, life sapping tools! You can do most of what you have to do with social computing for practically nothing. The social web is something that is going to happen anyway over time. People will start using these tools for business purposes whether we like it or not. They already are. All we have to do is not get in their way.So next time someone asks you the ROI of social computing ask them to work out the ROI of stopping it!”
“Reverse ROI. Euan Semple pushes back on ROI inquiries. In his view, the social business activity is happening, so we should go with the flow rather than using ROI inquiries as a means of stopping the activity. He asks the inquirer to provide the cost of ignoring or disallowing ESN activity.”
For social technologies, McKinsey “found that the companies identified as power users reported an incremental 5 percent in value added in 2010 and of up to 6.5 percent in 2014… It’s interesting that the incremental value from social technologies appears to be as large as it was from computers in the 1990s and, more recently, from technologies linked to big data.”
“APQC has identified a formal knowledge management (KM) business case as one of three principal drivers of KM success. Does your organization have a business case for KM? If so, is that business case getting your program the leadership support and funding it needs? If not, this white paper can help. Topics include: why you should formalize your KM business case, what questions your business case should answer, how to ensure your business case resonates with senior leaders, and how to measure results and validate your business case over time.”
On page 7, there is an ROI Calculator Example:
- Measuring Knowledge Management Initiatives
- Key Measures for Knowledge Management
- What’s It Worth? Measuring the Value of Knowledge Slides and Recording
2. Nick Bontis
“Time savings is a limited representation of total KM benefits. Because it is the most easily and credibly quantified benefits measure and can be directly converted to currency, time savings was the first target for this continuous measurement design. Subsequent metric targets for conversion could include increases in quality and contribution to sales.”
“I developed the FAIR value model, which can be used on any KM project and should really be considered before you launch any new knowledge effort. We have used this approach to help organisations who have struggled with demonstrating KM value to report comprehensive ROI in less than 90 days — please consider that you can achieve ROI statements a lot quicker on small scale projects and the 90 day target is for medium to large scale knowledge efforts.”
“Developing an ROI for Knowledge Management in your support center depends on your current state, your implementation plans, your team, and your customers. The need for a formal ROI depends heavily on the senior management responsible for the support center. Some companies have minimized this focus because of an existing strong support from senior managers for Knowledge Management. Industry research groups such as Gartner, Forrester, Yankee, and others have well documented the value of Knowledge Management in the support center.”
“Why take the time to accurately calculate ROI? A knowledge management initiative takes time, money and commitment — ongoing measurement of the program’s achievements will show that it can pay for itself and even start driving revenue to the company. These reasons create a compelling case for measuring ROI.”
“As you can see, changing the calculus can yield widely different results. That is troubling enough in itself. There is plenty of room to bamboozle a technology committee or a management group, just in the math alone. But there is a more fundamental problem with any ROI calculation: while the upfront costs are easy to determine, the net benefits are, essentially, an exercise in creating fiction. The more intangible the benefits involved, the more likely they are to be wrong.”
“I come not to praise ROI. I come to bury it, for a simple reason. A company that aims to maximize its ROI will always tend to underinvest, under-innovate, under-scale, and under-grow, and leave value on the table. It may even become vulnerable to a hostile takeover or a toppling by upstart rivals. ROI is like shooting percentage in basketball. To maximize it, you’d just take a sure layup and stop shooting. You can’t improve on 100%. You’d pass the ball even when you have a better shot than any other player. Managers judged by ROI will act the same. They’ll stop short of taking all the shots they should. Business units already earning high returns will tend to pass by growth they ought to pursue. The bottom line is, all companies should aim to maximize their EVA profit — even when that comes at the expense of ROI, as it almost always does.”
“The main problem with measurement systems is that it is not possible to measure social phenomena with anything close to scientific accuracy. All measurement systems, including traditional accounting, have to rely on proxies, such as dollars, euros, and indicators that are far removed from the actual event or action that caused the phenomenon. This creates a basic inconsistency between managers’ expectations, the promises made by the method developers and what the systems can actually achieve and makes all these systems very fragile and open to manipulation. Therefore, the first question for any one embarking on a measurement initiative must be: What is the purpose of our measuring initiative?”
“Questions to ask to assess the situation before diving into the business case:
- Why me?
- Business Case vs. Business Plan
- Business case vs. ROI
- ROI, NPV, IRR, payback, TTV
- Conceptual vs. Concrete
- Project vs. infrastructure
- Hard vs. soft
- Net benefit vs. status quo
- Prioritization vs. financial testing
- Lottery vs. followup”
1. Measuring the ROI of Knowledge Management 2nd edition by Stan Garfield, Andrew Gent, David Griffiths, James Gunn, Tim Hawley, John Hovell, James Loft, Hélène Russell, and Dave Snowden
Chapter 1: Understanding the knowledge economy — David Griffiths
- Economic value drivers
- Develop a competitive advantage
- Measuring the value of knowledge
Chapter 2: Knowledge management business case arguments — James Gunn
- KM — It’s the law/in the contract
- Creating new markets
- Creating a unique capability
- Creating strategic advantage
- Improving process productivity/incremental improvement 11
- Lessons learned programmes
- Encouraging knowledge sharing
- KM in support departments
Chapter 3: Using a Knowledge Audit as the basis for determining and driving the ROI of Knowledge Management — Tim Hawley
- An introduction to using a Knowledge Audit
- Designing the knowledge audit
- K-Audit questions
- K-Audit analysis
- Determining the business benefits
Chapter 4: The application of Artificial Intelligence to support the value of organisational knowledge and assist the knowledge ROI — James Loft
- The current marketplace
- Benefit themes
- Decision making
- The importance of design
- AI and business cases
- AI adding extra value to knowledge
Chapter 5: Measurement of KM projects — A practical guide for busy people — Hélène Russell
- The value and difficulty of measuring
- Where to start with KM measurement
- Who: Understanding the audience for the measurement
- How: Deciding on the practicalities of measurement
Chapter 6: Believing in organisational progress using data and anecdotes — John Hovell
- Social return on investment
- Expanding the ROI approach
Chapter 7: The case against ROI for knowledge management — Stan Garfield
- The right focus
- Literature review
Chapter 8: Winning the war by avoiding the battles — Focusing on the I in ROI — Andrew Gent
- Embedded KM
- Design to zero
- Reuse what exists
- DIY KM
Chapter 9: An ecological approach to understanding impact in knowledge management practice — Dave Snowden
- Key scientific insights
- New ways of thinking and acting
2. Measuring the ROI of Knowledge Management by Stephanie Barnes, Nick Milton, James Gunn, Tim Hawley, Chris Boyd & Jack Bostelman, Madanmohan Rao, and Catherine Boissonnet
- Return on investment and KM: Stephanie Barnes presents the reasons for measuring the ROI of KM and discusses the various metrics to use
- Calculating return on investment from knowledge management pilot projects: Nick Milton details how BP Group have measured the ROI of KM and provides practical steps you should follow when measuring the ROI of your own KM pilot projects
- Determining the ROI of knowledge management programs: James Gunn discusses executive skepticism towards KM and how to overcome it through the use of tools such as the causal link diagram and cost of quality arguments
- Justifying the investment in knowledge management: Tim Hawley gives detailed advice on building the business case for KM projects, including a structural checklist you can follow
- Showing the positive financial impact of KM in law firms: Chris Boyd and Jack Bostelman demonstrate how the financial impact of KM can be measured in law firms and other professional services firms
- Assessing KM — The impacts in Singapore’s Government and public sector agencies: Madanmohan Rao details the impacts of KM on Singapore’s Government and public sector agencies
- Return on Knowledge (ROK)™: Catherine Boissonnet presents the concept of Return on Knowledge and the impact it can have in terms of innovation, productivity, and time and cost savings
Chapter 8 — Making the Business Case
- The Benefits Dimension
- Evaluating IT Investment
- Justifying Knowledge Management
- Does ROI Matter?
- From Measurement Myopia to Knowledge Leadership
- Ten Characteristics of Knowledge Leaders
- The ABC of Making the Case
4. Knowledge Management Lessons Learned: What Works and What Doesn’t edited by Michael E. D. Koenig and T. Kanti Srikantaiah
Part II: Cost Analysis
- Chapter 9: Knowledge Return on Investment by Timothy W. Powell
- Chapter 10: Time Saved: Not a Politic Justification for Knowledge Management by Michael E. D. Koenig
- Chapter 23: Knowledge Management at Caterpillar by Reed Stuedemann (includes justifying communities)
- 2011 Forrester study on the Total Economic Impact (TEI) of Yammer
- 2014 Forrester study on the TEI of Office 365 for Enterprise Customers
- Areopa 4-Leaf Model for Intellectual Capital
- TBL: Triple Bottom Line
- Bill Kaplan: Measuring the Unmeasurable — Part 1, Part 2, and Part 3
- Art Murray: The world of intangible asset valuation
- Jay Cross and Jon Husband: Not Your Father’s ROI
Have you used ROI, EVA, or TBL to definitively prove the value of your KM or social business initiatives? If so, please provide some details. If not, why not?