Making the Business Case
It is very difficult to directly relate financial benefits to KM activities, especially ahead of time. Therefore most experts believe that the business case for KM is best developed around a value proposition. This demonstrates how more effective management of knowledge can directly address current challenges and contribute to an organizational goal.
Some Value Drivers
Here are potential areas around which to develop your value proposition:
- Intangibles - such as 'brand' value, patents, copyrights and other intellectual property
- Innovation - using KM to be better at developing innovative products that are ahead of the market or indeed create new markets
- Quality - using KM to apply the best knowledge into delivering quality products and services; this makes it easier to gain new customers and compete more successfully
- Customer satisfaction, reputation - monitoring feedback and applying knowledge to solve customer problems leads to greater satisfaction and to better customer retention; it costs several times more to create a new customer than hold on to an existing one
- Management capabilities, internal systems - can KM significantly improve one of your core processes?
- Critical know-how - is there some core knowledge that can be protected and continually refined to give you a competitive edge?
The ABC of a Business Case
In developing a business case, you need to come at it from three perspectives - an Asset focus, a Benefits focus and a focus on Cost effectiveness.
What is the value of knowledge? You could look at some of the measures used for intellectual capital, but htese are indicators rather than absolute value. For more absolute measures of value consider these approaches:
- Replacement cost: if the knowledge or information is lost / destroyed, what will it cost to replace it?
- Market value: some types of information and knowledge can be traded on the open market (e.g. databases); what is the going rate?
- Liability cost: if I cannot access this, what would be the damages in a court of law for various liabilities: product liability, breach of contract etc.
Even then you may end up with a wide range of potential values. After all value is very context dependent: "value lies the eyes of a beholder". Thus the value of a glass of water may be a fraction of a cent to you, but it could be worth hundreds of dollars to an individual dying of thirst.
This requires articulating various business benefits. See KM BASICS - Why KM? which divided benefits into these three categories:
- more efficient processing of information and knowledge
- internal organizational benefits, including efficiencies and effectiveness
- benefits to external customers and stakeholders
Such benefits will generate a combination of increased revenues, lower costs, higher profits and reduced risk.
Cost Effectiveness Focus
Some commonly cited examples are:
- Better use and deployment of resources, especially people
- Knowledge worker productivity e.g. one major consultancy estimated that just a 1 per cent improvement could add $75m to its bottom line
- Sharing best practices acorss the organization, e.g. in the late 1990s Chevron saved $100m in energy costs
- E-opportunities e.g. Sun Microsystems is reported to have saved $100m after its customer use self-help resources on its support website
- Better focus on key customers - a few customers generally account for a disproportionate contribution ot a company's profit
- Minimise rework, duplication and lost knowledge, particularly in a manufacturing context.
One of the things I find surprising is that many organizations, especially those in the public sector, do not have a good handle on the cost-effectiveness of their people. How are they spending their time? How productive are they? Unless you have good time reporting and analysis, you will never know.
Five Steps to the BCASE
- Business drivers - work out which ones are important - costs, customer focus etc.
- Change levers - select a few of the seven KM strategy levers as your focus
- Assess your KM status - use one of the assessment tools
- Select a pilot project - the essence here is to "go with the flow"; find someone who really wants to work with you
- Evaluate and learn - results from one or more pilots can increase your confidence in making the business case for a larger programme.
Why is it Difficult?
It's often not as simple as ABC for several reasons including:
- Benefits are difficult to measure - was any improvement just the result of KM or other factors as well?
- Costs are focussed and visible - benefits are diffuse, e.g. such as saving 10-20 minutes time a day for every professional
- The baseline often not known, especially for staff time
- A financial perspective dominates; does KM meet an RoI hurdle, rather than what service or customer benefits does it achieve
- There are complex cause and effect interdependencies
- There are often unanticipated benefits, such as reduced staff turnover because KM tools make their job easier.
In Words rather than Numbers
What some knowledge leaders have told us:
"There was no quantified financial justification"
"We have to do it"
"User enthusiasm may be the most significant measure"
"Anecdotal stories are a good way to 'ignite change'"
As for stories. They inspire people and backed up by believable numbers can both help make the case and gain commitment. It was a story that kicked off knowledge management at the World Bank, a recognized early leader in knowledge management.
Above all, avoid analysis paralysis. Don't get bogged down in numbers but demonstrate knowledge leadership. Knowledge leaders understand the importance of knowledge and stimulate others with their vision and commitment. They "act before measuring" and "learn as they proceed".
Last updated: 19th March 2011