By Michael Mainelli, Director, Z/Yen Limited

Recently, I attended yet another dull knowledge management presentation. The presenter was enthusiastic but the audience was limp, and not just from the overheated venue. Why? The answer was not revealed during questions. It only came clear later over drinks when the attendees chatted among themselves. The presenter had lost all credibility by quoting incredible rates of return without once referring to measuring knowledge in the first place.

"Knowledge management" is fashionable jargon. Knowledge management as a concept adds value by getting people to think about information in new, structured ways - as an asset. But listen to the presenter trying to drum up new business in a drying market. "42% improvement in corporate knowledge" (what?); "efficiency gains of 15% to 65% at law firms!" (really, profits up that much because of a knowledge management system?); "XXX, the big market research firm, states that KM initiatives have a three month payback" (since when did I ever believe their claims?). These claims insult an audience’s intellect. The knowledge management community should shake these snake oil sales techniques. The presenter made one claim that did ring true, albeit a cliché that was not followed through, "knowledge management is only useful if it improves business performance". Fine, so how are we going to measure this?

Things are not straightforward. Take a hypothetical 100 person firm examining its knowledge base. Say that the firm believes that there are three important knowledge areas (1) professional knowledge, (2) industry knowledge and (3) knowledge of the firm. Assume that (1) is broadly assessed by qualifications, (2) by time in the industry and (3) by time with the firm. At the start, all 100 people have spent 10 years working only with the firm. 1,000 years of experience in the industry and 1,000 years with the firm. One employee leaves to be replaced with a new hire who has 10 years of experience outside the firm. Now we have 1,000 years of experience in the industry but only 990 years with the firm. But it’s fairly obvious that this new person has a great opportunity to add value. So why do our calculations show that knowledge was destroyed? Because simple measures of aggregated knowledge are close to useless. It’s as if we said that the world-wide web was valuable because of X billions of documents, rather than what the world-wide web enables you to do. We need to look at the return on an asset, not its list of features.

Some phrases ring loud bells with a financial auditor - "X is an asset. X is crucial to our organisation. People in our organisation manage X. X has value." Assets - useful or valuable qualities or things - require care and attention. Asset value needs to be preserved and, where possible, enhanced. If knowledge is an asset, let's treat it like one. There are some challenging implications from this simple association. For any significant asset, an auditor expects seven typical pieces of evidence:

  • accurate understanding of the Cost of the asset;

  • confirmation of Ownership of the asset;

  • some Disclosure of the importance of the asset;

  • ability to confirm the Value of the asset;

  • evidence of the Existence of the asset;

  • clear lines of Responsibility for the asset;

  • measurable Benefit from the asset.

Without all of the above, phrases such as "knowledge as an asset" or "knowledge management" are just fluff sitting on top of some new technology (perhaps the somewhat surreal, but snappy, "COD-VERB" should catch on as a mnemonic device). If knowledge is not an asset, let's stop bandying about phrases with little meaning and talk about a few databases we happen to have lying about. The rate of return, so transparently concocted by Knowledge Management systems providers, can be estimated by analysing what reduction (or enhancement) would be achieved with a new product or without the asset. Meeting the COD-VERB tests should be a goal for information systems professionals and knowledge management system providers.

Until presentations on knowledge management include solid examples of the measurement and reporting of COD-VERB, the claims of knowledge management firms are hard to swallow. With knowledge measurement, there’s no management at all. And I’ll go back to sleep in the back row.

Michael Mainelli originally did aerospace and computing research, before moving to finance. Michael was a partner in a large international accountancy practice for seven years before a spell as Corporate Development Director of Europe’s largest R&D organisation, the UK’s Defence Evaluation and Research Agency, and becoming a director of Z/Yen. Michael has been advising firms for over 15 years on strategy, systems, finance and risk, as well as responsible for designing and constructing several knowledge management systems (Michael_Mainelli@zyen.com).

Z/Yen Limited is a risk/reward management firm working to improve business performance through better decisions. Z/Yen undertakes strategy, finance, systems, marketing and organisational projects in a wide variety of fields (www.zyen.com), such as recent projects managing development of a client’s stochastic perception engine or benchmarks of transaction costs across 25 European investment banks. Michael’s humorous risk/reward management novel, co-authored with Ian Harris, "Clean Business Cuisine: Now and Z/Yen", awarded Sunday Times Book of the Week in 2000, has been described as "‘humorous’ business book . . . putting their business philosophy across without using jargon or compiling lists" by no less than Mick James in Knowledge Management.