KNOWLEDGE MANAGEMENT FROM THE INFORMATION PROFESSIONAL PERSPECTIVE

MEASURING RETURN ON INVESTMENT

How can the millions of dollars invested over the past few years in knowledge management systems be justified, and what is the justification for investing even more money, time, and labor in these systems? Eventually some return on this investment must be documented.

Journal articles dealing with measurement of return on investment (ROI) in knowledge management technology and programs indicate that some companies:

are not measuring ROI because they are not required to do so,

do not know what to measure,

have anecdotal evidence of value returned, and

have successfully calculated ROI and linked it to performance objectives.

Familiar examples of companies successfully documenting financial benefits from knowledge management initiatives include BP (now BP Amoco), and Schlumberger, Ltd.

BP (now BP Amoco) reported gains of $20 million in 1997, and $260 million in savings in 1998—with $400 million more likely but not yet booked from sharing best practices and reusing knowledge. (“Telling Tales at BP Amoco”, by Thomas A. Stewart, Fortune, June 7, 1999).

Schlumberger Ltd. earned an estimated 668% ROI on its $72 million investment in knowledge management over six years (“Wise Investments”, CIO Enterprise, Section 2, October 15, 1997, P. 28).

Consider the following quote from "A Closer Look – Knowledge Yields Impressive Returns" by Stephanie Stahl in InformationWeek, May 5, 1999, P. 115:

"Platinum Technology, saw a $6 million return on its investment of $750,000 for a Web system that lets sales and marketing staff find product data. That's just the measurable cost. The system also help employees save two hours a week searching for information."

"But for many companies, measuring ROI is not only difficult, it's undesirable. The goal is to leverage intelligence, and a price tag simply can't be put on that. 'If you are insistent upon ROI, knowledge management will die a quick death,' says Tom Brailsford, manager of knowledge leadership at Hallmark Cards. Instead, he says the focus should be on 'creativity, innovation, and moving the business forward.'

Goals of knowledge management systems include:

Less redundancy

Fewer mistakes

Quicker problem solving

Better decision-making

Reduced R&D costs

Process improvements

Development cycle time

Increased worker participation/diverse viewpoints in business decisions

Increased employee satisfaction

Better internal communication

Greater responsiveness to customers

Faster response to competitive threats

Improved products

Retention of intellectual capital

If achieved, these goals provide significant organizational performance improvements and financial benefits that must be documented. It is easier to calculate the dollar benefit of shaving weeks or months off the product development cycle than to attach dollar amounts to softer benefits such as customer satisfaction and better decision-making. However, anecdotes and stories demonstrating these softer benefits should be captured; eventually there will be enough anecdotal evidence to estimate cost savings, revenue gains, and performance improvements.

When calculating and presenting ROI figures, remember that maximum impact will be realized from relating ROI to performance measurement values espoused by senior management of your organization. Common performance measures include:

Quality

Customer satisfaction

Time to market cycles

Economic value added

Shareholder satisfaction

Accelerated financial growth

Since most knowledge management programs are staged, it is advisable to calculate ROI for specific applications (e.g., an intellectual property management system) and then aggregate the numbers for an overall picture. Performance metrics should be discussed and agreed on by all the groups involved in implementation of knowledge management programs.

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Unit 8 Knowledge Management From The Information Professional Perspective

Dow Jones InfoPro Resource Center