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Time For The CKO
- 1. Time for the CKO … and why it matters … and why now Matthew H. Loxton June 2012
- 2. 80’s and 90’s False Start • The Gurus – Drucker, Nonaka, Bontis, Dalkirk, Takeuchi, … • The Message – It’s the “Knowledge Age” – Knowledge Workers are everywhere – Knowledge is the only remaining and sustainable differentiator • The Reality All True, but … – Immature Technology, unprepared management, no integration – Lack of Academic Maturity, Research, Publications – Lack of Practitioners and Purpose – Confusion between technology and praxis
- 3. Revisit some Basics • Wealth • The change in Intangibles
- 4. Wealth – Where does it come from?
- 5. Knowledge Is the New Oil • Intangible Assets account for >80% of the market value of the S&P 500 companies • Knowledge is indeed a key business differentiator (Adams & Oleksak)
- 6. Knowledge Management Today KM is now a mature & robust discipline • Academic Maturity – Master’s and PhD programs – Peer-reviewed Journals – Interlocking Disciplines • Business Maturity – Adoption by many industry leaders – Director and Manager positions – Increasing Integration across firms • Maturity of Purpose – Operational Enablement (JiTK) – Communities of Practice – Intellectual Capital & Innovation
- 7. The CKO Role Like a CFO, but for Knowledge and IC CKO responsibilities include such things as: • Providing oversight for inventorying knowledge and identifying knowledge requirements for business objectives • Developing a framework guiding knowledge management including Organizational Learning, KM Audit, & Onboarding • Actively promoting the knowledge agenda within and beyond the company to partners, suppliers, and shareholders • Overseeing the development of the knowledge infrastructure and commoditization and valuation of packaged knowledge • Facilitating connections, coordination and communications (adapted from Wikipedia, May 30,2012)
- 8. KM Activities Conservation Innovation • Interlock with QM on Best • Importing alien ideas Practices & Continuous Improvement • Bringing CoPs into contact • Interlock with L&D on Operational Learning & • Scenario Planning Mentorship • Interlock with HR on Human Capital and Internal CoP • Interlock with Finance on Structural Capital & Valuation of Know-How • Interlock with Sales & Marketing on Relationship Capital & External CoP
- 9. Not for Everyone • Business Model – Knowledge is integral to achieving business objectives – Product set is moderately Complex, Critical, or has to comply with standards or regulations • Culture & Environment – Learning & Sharing – Established Communities of Practice – Commitment to Transparency & Accountability • Volatility & Variability
- 10. Volatility & Variability • Market – Laws – Technology – Players • Products – Broad Range – Frequency of Model Changes & ECO • Staffing – Turnover – Aging – Skills, Experience, Performance
- 11. Why Should You Care?
- 12. Adoption Speeds Have Changed Mary Meeker -2012
- 15. Increasing Trade in IC “Intellectual property has become one of the most important resources in the 21st century. It’s now an accepted fact that, just like financial capital or commodities or labor, IP is more than an economic asset – it also forms the basis of a global market” Manny Schecter, chief patent counsel at IBM. (Forbes 2012) • Patent Farming & Collectives • Defensive Patents • Auctions & Sales
- 16. The Time is Ripe • All the immaturity failures of the 80’s and 90’s have been rectified – Focus – Maturity – Integration • The Role of IC and rate of climb have increased significantly • Investors and Board Members want more specificity of the “Goodwill Bucket” • Trade in IC is trending sharply upwards
- 17. What’s Next? • Try the Fit-test Survey • Run your department/organization/client through the KMOL-C climate survey • Help me understand how knowledge features in your organization/environment • Tell three people about the CKO role!
Editor's Notes
- Matthew Loxton is a Knowledge Management Expert and Organizational Learning professional - putting knowledge Assets to Work and blogs on Knowledge Management and Organizational Learning as well as serving as a peer reviewer for the international Journal of Knowledge Management Research & Practice. Previous posts include Global Director of Knowledge Management & Change Management at Mincom, and Director of the Knowledge Office at Jabil Circuit. Matthew holds a Master’s degree in Knowledge Management from the University of Canberra, and performs pro bono Knowledge Management work with various healthcare organizations. www.matthewloxton.com
- In the 80’s and 90’s “The Knowledge Age” was the new fancy idea, and was taken up mainly by gurus like Drucker, but also several business academics. Unfortunately the hype quickly overtook any ability to deliver, and consulting firms and software companies pounded money out of it and it quickly turned into a fad. The idea was good, but the terrain was unprepared and consulting and software simply wasn’t going to deliver an ROI. Management didn’t know how to “do KM”, nobody was quite sure what the objectives were, and there simply were too few actual KM practitioners to even make a dent in it. The result was an expensive, highly visible, and embarrassing belly-flop.
- Two major changes have been underway – where wealth comes from, and the proportion of corporate value that is due to intangibles. This important in terms of the increasing role that knowledge per se’ plays in both financial success of firms in terms of EBITDA, but also in the valuation of the difference between book value and market capitalization.
- Over the last hundred years, the measurement of corporate wealth has shown an increasing shift from property to ability. At the turn of the last century a firm’s wealth was made up primarily from its ownership of tangible assets – real estate, equipment, stock, and cash, but by the arrival of the early Knowledge Era, this had already been shifting The current era is marked by a shift in the balance between the contribution to EBITDA and Market Capitalization in favor of Intangible Assets, and this is deemed likely to continue for several decades.
- Knowledge was seen by Drucker, Senge, and others as being the only remaining way that firms can stay competitive in the Knowledge Era, and the major source of differentiation amongst competitors. These days every firm has more or less the same access to capital, raw materials, basic labor, and equipment as every other, and competitive advantage is no longer a matter of merely securing access to resources or materials. The thing that separates Apple or 3M from the lower-order players is not physical assets but knowledge and acumen. At the same time the people that track market valuation have been noticing an increase in the “Q” value that Tobin derived by comparing the market value of a firm with its physical assets and cash. What has been increasingly obvious since the mid eighties is that the gap has been rapidly widening and that it seems to be stabilizing at around 80% of a firm’s market cap being attributable to intangible assets. In this slide we show an illustration of the split between tangible and intangible value in the S&P 500 rising from 20/80 in the late 70’s to 80/20 in 2005 As per the International Association of IC Practitioners (IAICP), these include: - Relationship Capital such as customer goodwill, reputation, and referrals Human Capital such as skills, knowhow, and expertise Structural Capital such as processes, patents, and trade secrets
- Nonaka provides a model that distinguishes between knowledge that people can turn into documents (Explicit) and knowledge that either can’t be expressed or is locked away in their heads and practices and maybe even something they were unaware that they knew (Tacit). His model provides ways to move explicit knowledge into tacit knowledge (like studying and practicing the cello), tacit into tacit (like an apprenticeship), tacit into explicit, and explicit into explicit. Many colleges and universities now offer master’s and doctoral programs for KM, and several institutes such as the Knowledge Management Institute offer certification courses for practitioners. Several KM journals are published, amongst which the Journal of Knowledge Management Research & Practice has a rated impact factor. KM interlocks with several other fields – at one end with the TQM, Lean/6Sigma movements, Applied Psychology, and Operational Research, and at the other end with Finance & Economics through Intellectual Asset Management and Intangible Asset Management Many large and innovative firms employ KM – from 3M to Xerox, including Deloitte, Dow Jones , Forrester, Fujitsu, Gartner, Google, HP, IBM, Lexis-Nexis, Pratt & Whitney, PWC, Siemens, World Bank , etc. Luminaries championing KM include Drucker, Senge, Argyris, etc. The primary areas of activity for KM are in workplace collaboration, management of innovation, the development of occupational communities in which standards of practice are refined, and corporate valuation through increased discovery and accounting of intellectual assets.
- The CKO is not a new role, but one which holds increasing relevance in an age where knowledge and other intangible assets form such a large proportion of value, and in a time when retirement rate reaches 10,000 people per day in the US. The CKO should be the structural keystone that brings IC and knowledge in particular under a single umbrella of scrutiny, management, and governance. The days in which a firm’s knowledge could be left to the day to day operational dynamics are long gone, and it amounts to corporate suicide to leave knowledge management to chance. To be sure, everyone “does” Knowledge Management”, just like every firm “does finance”, but leaving it to chance implies that it is not likely to be done well, nor done in a fashion that enhances the likelihood of achieving organizational objectives. In much the same way that a CFO does not personally own all the money in the organization but provides governance, guidance, and a framework under which money and physical assets are managed and accounted for, the CKO should do the same for knowledge and IC.
- Knowledge Management straddles all operations of an organization, and at its heart asks a simple duo of questions: how does a person know what they are meant to do, and how do they know how to do it? In this sense KM overlaps on one side with HR/Recruitment in terms of what skills and experience a person needs to have prior to joining the organization in order to execute the assigned activities in their role. KM also interfaces with Learning and Development in order to make good on knowledge that must be taught in addition to those “just-in time” job aids that must be presented to a worker at the time of execution in the form of knowledgebase articles. On the valuation side, KM interfaces with Finance to establish value of knowledge artifacts and the abilities of staff. KM provides both tactical and strategic support for the organizational mission as far as knowledge is concerned – from operational knowledgebases, to Communities of Practice, to valuation of Intangible Capital such as trade secrets, methods, procedures, copyright, patents, etc. In addition KM provides the framework and basis upon which those could be bundled or comoditised to make them available for franchising, leasing/licensing, or sale.
- The CKO role, and in fact organized and institutionalized Knowledge Management, is not for everyone, and the research shows consistently that there are several factors that are indicators that institutionalized KM and a CKO role would deliver a strong ROI. The higher a firm rates on these items, the more likely there is to be a positive ROI for institutionalized Knowledge Management. Here we deal with the three broad areas.
- Variability and Volatility deserve special attention since the more fluid and volatile the market, products, and labor pool are, the higher the need to be able to learn quickly and adapt fast and be able to lower the risks of volatility by having on-hand knowledge that represents the best and most current available.
- Surprisingly parallel to some of the guru’s statements about change itself, we have indeed seen an acceleration in both the rate of change in terms of number of innovative products per unit time, but also an acceleration in the rate of adoption. Not only does the curve angle steeply upwards for the technological advancement of the hand-held device for example, but the speed at which they are adopted and put into use is also sharply steepening. Note the rate of climb of the iPod slope (itself remarkable) compared to the far sharper ascent of that of the iPhone, which in turn is outpaced by the even sharper rate of climb of the iPad. Each model is not only more complex, feature rich, and technologically advanced than the next, but the rate of acceptance is sharply steeper in each case. This certainly cannot be ascribed to price-point since the iPad is more expensive than the iPhone, which is more expensive than the iPod. We now live in a period in which both the rate of change as well as the rate of use will continue to climb, making knowledge ever more pertinent as a differentiator and as value.
- According to Mary Meeker, we are still only in the foothills of this acceleration curve, and many more technologies are about to stimulate each other’s upward slope. Each product and technology not only climbs furiously on its own, but enables the rate of climb of others which in turn act on them in turn in an upwardly iterative process.
- Which of course all comes back to money! The climb rates translate to investment opportunities, organic growth, partnerships, and trade in intangibles.
- So where are we compared to the 80’s and 90’s? The reasons for the lack of mainstreaming of institutionalized Knowledge Management have all fallen away, but the reluctance is still dwelling because of that memory in the minds of many executives. At the same time we have several emergent and increased pressures for institutionalizing Knowledge Management. Technological changes and adoption rates continue to climb You cannot simply put 80% of an organization’s worth under “goodwill” The trade in IC has increased sharply over the last decade both for defensive and product development uses.
- Fit-test Survey at http://www.surveymonkey.com/s/ICKC-KM KMOL-C climate survey http://www.surveymonkey.com/s/ICKC-KMOL