Knowledge
    Management
Why &What Do You Measure?
                        - Carl Frappaolo
            Information Archit...
Would you trust the
evaluation of your company
        to this man?
“Accounting, is increasingly
irrelevant. “


      - Baruch Lev, Professor of Accounting
     and Finance at NYU's Leonard...
“In this new world, information is king.
The more information you have, the
better and faster your analysis, the
greater t...
Knowledge Needs to
   be Measured
Before it is Managed
 (and appreciated)
But To What End?

 Realization/Accounting
 Validate/ROI
 Control
Realization/Accounting
 Standard & Poor’s 500; Market to
    Book ratio
       – 1929: 30/70%
       – 1990: 63/37%
     ...
Realization/Accounting
 Innovation/R&D (KM)
 Power of Brand Identity (Face of KM)
 Process/structural improvements
    ...
Realization/Accounting

 Structural Capital
 Human Capital
 Customer Capital
Realization/Accounting
 Market Capitalization
 Average Normalized Earnings
 Scorecards/Direct IC
 Return on Assets
 R...
Market Capitalization

 Market Cap - stockholders equity = IC
Average Normalized Earnings

 Avg (Past Earnings + Consensus
     Forecasts of analysts for future earnings) –
reasonable...
Scorecards/Direct IC
 Estimate of IC via its components.
 Identified and evaluated either individually
or as an aggregat...
Scorecards/Direct IC
 Example: Traversing the Knowledge Chain
                      Internal   External


         Awaren...
Return On Assets (ROA)
 Avg pre-tax earnings for x years / avg
intangible assets for x years = Avg ROA
 (Avg ROA - Avg R...
Return On Assets (ROA)
 Focus On Specific Intellectual Asset
    Property Management Systems (IAPMS)
 $1 trillion In Int...
Return On Assets (ROA)
 Example: Patents as Intellectual Property
 Intersection of Employee Competence, External
      S...
Return On Assets (ROA)
 Employee Competence (Relevance and talent pool)
   Number of reported inventions/employee
   Nu...
Return On Assets (ROA)
 Internal Structure (portfolio maturity, growth and
value)
    Average age of patent rights
    ...
Return On Assets (ROA)
 External Structure (External value)
   % commercially used by company
   % patent licensed to o...
Return On Assets (ROA)
 Aggregate Alignment
   % sales protected by patents
   % of income from licensing patents right...
Return On Innovation
 ROI = ((% of Profit/100) * ( Sustained Yrs /
        #Yrs ))
        ROI    %Profit   #Yrs   Sustai...
Return On Value
 Focus on Value Not Costs
 Requires Strong Sponsor With Vision
 Must Be Aligned With CSF/Explicit
 Hig...
Validate/ROI
Validate/ROI
“KM is about creating value based on the
intangible assets of the firm . . . .”
- Hubert St. Onge 


“But som...
Validate/ROI
 Red Flag Not a Stop Sign
 Align With Vertical/Specific Hot Buttons
Validate/ROI
 Focus On Tactical, Tedious/Undersell
   Reduction in Floor space
   Time Saved Not asking questions
   L...
Validate/ROI
 Leverage These to Go Forward
 Pilots Versus Full Scale Implementation
 Audits After The Fact
 Never Unde...
Control
Control

 Big Brother vs.Encouragement and
Recognition
 Control to encourage and promote
community
Control

 Monitoring and tracking Individual and
    team-based authoring, reading,
    collaboration, projects, search
...
Control

 Proactively Approach Incentivization
    Paradox
 Input, Usage, Collaboration, Results
 Align Reward With Cul...
Further Discussion?
–  Carl Frappaolo
–  cf@informationarchitected.com
–  617-933-2584
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Measuring Knowledge

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Exploration of how and why to measure the success of a knowledge management initiative and the value of knowledge

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Measuring Knowledge

  1. 1. Knowledge Management Why &What Do You Measure? - Carl Frappaolo Information Architected, Inc.
  2. 2. Would you trust the evaluation of your company to this man?
  3. 3. “Accounting, is increasingly irrelevant. “ - Baruch Lev, Professor of Accounting and Finance at NYU's Leonard N. Stern School of Business
  4. 4. “In this new world, information is king. The more information you have, the better and faster your analysis, the greater the probability that you will make winning investments.” Geoffrey Moore - Inside the Tornado
  5. 5. Knowledge Needs to be Measured Before it is Managed (and appreciated)
  6. 6. But To What End?  Realization/Accounting  Validate/ROI  Control
  7. 7. Realization/Accounting  Standard & Poor’s 500; Market to Book ratio – 1929: 30/70% – 1990: 63/37% – 2001: 84%/16%  Example: IBM Acquired Lotus; $1.84 billion estimated in Intellectual Capital  Several Approaches  Primarily Focused on Intangible Assets
  8. 8. Realization/Accounting  Innovation/R&D (KM)  Power of Brand Identity (Face of KM)  Process/structural improvements (Deployment of KM)  Monopolies/Cost of Entry
  9. 9. Realization/Accounting  Structural Capital  Human Capital  Customer Capital
  10. 10. Realization/Accounting  Market Capitalization  Average Normalized Earnings  Scorecards/Direct IC  Return on Assets  Return on Innovation  Return on Value
  11. 11. Market Capitalization  Market Cap - stockholders equity = IC
  12. 12. Average Normalized Earnings  Avg (Past Earnings + Consensus Forecasts of analysts for future earnings) – reasonable estimate on physical assets = IC  KM value + Brand + Customer base)
  13. 13. Scorecards/Direct IC  Estimate of IC via its components.  Identified and evaluated either individually or as an aggregated and/or correlated coefficient.  More focused on internal health than financial stability  Direct IC Attempts to estimate a dollar value
  14. 14. Scorecards/Direct IC  Example: Traversing the Knowledge Chain Internal External Awareness Responsiveness
  15. 15. Return On Assets (ROA)  Avg pre-tax earnings for x years / avg intangible assets for x years = Avg ROA  (Avg ROA - Avg ROA per industry ) * Co avg tangible assets = avg earning from IC
  16. 16. Return On Assets (ROA)  Focus On Specific Intellectual Asset Property Management Systems (IAPMS)  $1 trillion In Intellectual Assets  Spurred By Need To Look For Alternative Means To Revenue
  17. 17. Return On Assets (ROA)  Example: Patents as Intellectual Property  Intersection of Employee Competence, External Structure and Internal Structure  Alignment With Core Goals and Competencies  Specific Infringement Focus and Partnering Opportunity
  18. 18. Return On Assets (ROA)  Employee Competence (Relevance and talent pool)  Number of reported inventions/employee  Number of filings/employee
  19. 19. Return On Assets (ROA)  Internal Structure (portfolio maturity, growth and value)  Average age of patent rights  % patent rights not yet published  Total number of patent rights  Total patent inventions  Number first filings
  20. 20. Return On Assets (ROA)  External Structure (External value)  % commercially used by company  % patent licensed to others/coopetition  % involved in disputes  % time spent in litigation
  21. 21. Return On Assets (ROA)  Aggregate Alignment  % sales protected by patents  % of income from licensing patents rights  % of new-to-market- products protected by patent rights  Sales protected by patent rights/R&D expenditure  Licensing income/R&D expenditure  Total patent costs/R&D expenditure
  22. 22. Return On Innovation  ROI = ((% of Profit/100) * ( Sustained Yrs / #Yrs )) ROI %Profit #Yrs Sustained Yrs 2.5 50 1 5 2.7 80 3 10 13.5 90 1 15 1.5 50 10 30 1.0 100 20 20
  23. 23. Return On Value  Focus on Value Not Costs  Requires Strong Sponsor With Vision  Must Be Aligned With CSF/Explicit  High Business Impact, Results That Are Transferable and Practical
  24. 24. Validate/ROI
  25. 25. Validate/ROI “KM is about creating value based on the intangible assets of the firm . . . .” - Hubert St. Onge “But sometimes the CFO gets obstinate.” - Carl Frappaolo
  26. 26. Validate/ROI  Red Flag Not a Stop Sign  Align With Vertical/Specific Hot Buttons
  27. 27. Validate/ROI  Focus On Tactical, Tedious/Undersell  Reduction in Floor space  Time Saved Not asking questions  Less time answering questions/recreating answers and solutions  Less time receiving and reading irrelevant email/ sources  Cost of a wrong answers  Reduced travel time and expense  Reduced employee turn-over  Quicker employee assimilation
  28. 28. Validate/ROI  Leverage These to Go Forward  Pilots Versus Full Scale Implementation  Audits After The Fact  Never Underestimate The Power Of Culture
  29. 29. Control
  30. 30. Control  Big Brother vs.Encouragement and Recognition  Control to encourage and promote community
  31. 31. Control  Monitoring and tracking Individual and team-based authoring, reading, collaboration, projects, search  Value is in brokering tacit knowledge owners and fostering new alliances
  32. 32. Control  Proactively Approach Incentivization Paradox  Input, Usage, Collaboration, Results  Align Reward With Culture
  33. 33. Further Discussion? –  Carl Frappaolo –  cf@informationarchitected.com –  617-933-2584

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