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

1. Knowledge
Management
Why &What Do You Measure?
- Carl Frappaolo
Information Architected, Inc.

2. Would you trust the
evaluation of your company
to this man?

3. “Accounting, is increasingly
irrelevant. “
- Baruch Lev, Professor of Accounting
and Finance at NYU's Leonard N. Stern
School of Business

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. Knowledge Needs to
be Measured
Before it is Managed
(and appreciated)

6. But To What End?
 Realization/Accounting
 Validate/ROI
 Control

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. Realization/Accounting
 Innovation/R&D (KM)
 Power of Brand Identity (Face of KM)
 Process/structural improvements
(Deployment of KM)
 Monopolies/Cost of Entry

9. Realization/Accounting
 Structural Capital
 Human Capital
 Customer Capital

10. Realization/Accounting
 Market Capitalization
 Average Normalized Earnings
 Scorecards/Direct IC
 Return on Assets
 Return on Innovation
 Return on Value

11. Market Capitalization
 Market Cap - stockholders equity = IC

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. 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. Scorecards/Direct IC
 Example: Traversing the Knowledge Chain
Internal External
Awareness
Responsiveness

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. 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. 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. Return On Assets (ROA)
 Employee Competence (Relevance and talent pool)
 Number of reported inventions/employee
 Number of filings/employee

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. 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. 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. 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. 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. Validate/ROI

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. Validate/ROI
 Red Flag Not a Stop Sign
 Align With Vertical/Specific Hot Buttons

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. Validate/ROI
 Leverage These to Go Forward
 Pilots Versus Full Scale Implementation
 Audits After The Fact
 Never Underestimate The Power Of Culture

29. Control

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

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. Control
 Proactively Approach Incentivization
Paradox
 Input, Usage, Collaboration, Results
 Align Reward With Culture

33. Further Discussion?
– Carl Frappaolo
– cf@informationarchitected.com
– 617-933-2584