Return on knowledge

EDITED BY HELEN ROCHE
Measuring the ROI of
Knowledge Management
PUBLISHED BY

Measuring the ROI of Knowledge Management
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53
By Catherine Boissonnet, VEDALIS Ltd
WHEN PRESENTING a KM strategy or project
to management, it is understandable for
them to ask whether the investment in the
implementation of such a strategy/project
will have a positive effect on the company’s
performance, especially in terms of important
factors like implementation costs and
profitability. What is the answer? This is difficult,
but it is important to consider what you plan
on achieving by implementing a KM project.
One response to the question regarding
the return on KM could be that implementing
a KM project would have the following
significant benefits for the company:
„„ An increase in the company’s ability
to innovate;
„„ An increase in labour productivity;
„„ An ability to manage the risk of losing
critical knowledge; and
„„ Saving time and reducing the costs of
information processing.
These benefits will be explained in the
following sections.
Well defined KM strategies can
influence innovation, performance,
and productivity
Measuring the return on KM projects is a
longstanding issue for KM practitioners.
In 2004, the Organisation for Economic
Co-operation and Development (the
OECD), in collaboration with Statistics
Canada, commissioned surveys in seven
countries1
(Germany, Canada, Denmark,
France, Ireland, Italy and Japan) to question
companies about their use of KM strategies
and practices in terms of:
„„ Rewarding employees for reports on
lessons learned projects;
„„ The adoption of best practices and the
development of training manuals;
„„ Simplifying collaboration between teams
working remotely; and
„„ Integration and knowledge sharing.
The French study selected four KM parameters
and integrated these questions into an existing
innovation survey. The survey questioned
companies on the procedures, conditions,
and effects of innovation across the company.
A KM index from 0 to 4 was defined from the
combination of the following four parameters:
culture sharing, employee retention, alliances/
partnerships, and written policies.
The French survey was sent to 5,500
companies (with a response rate of
85 per cent) and revealed that, whatever
the size of the company, area of activity,
or effort in research and development,
the company was more innovative if it
implemented a KM strategy. This KM strategy
also has an effect on labour productivity.
The results showed that: ‘KM type companies
state they have a culture of knowledge
sharing and have higher labour productivity
than companies that have not adopted such
a KM strategy.’2
Expert analysis 7: Return on
Knowledge (ROK)™

Expert analysis 7: Return on Knowledge (ROK)™
54
Innovation: KM makes the difference
The average company has a KM index
of 0.9 (see Figure 1). So what are the
effects of KM on the propensity to innovate
and the importance of this innovation in
an organisation?
Results have shown that the transition
from 1 to 3 on the KM index – that is,
increased use of KM and KM maturity
– reduces the time to market of new or
significantly redesigned products by 11
per cent. It also increases the impact of
innovation within the company’s turnover by
2 per cent. This is one means by which the
return on KM can be measured within an
organisation and, if it can be shown that KM
projects have reduced the time it takes for
the organisation to get their products to the
market, then this will be seen as an incredibly
valuable return on knowledge projects.
Productivity: KM makes the difference
What productivity gains can be expected
from implementing a KM strategy and
increasing an organisation's KM index?
Figure 2 shows that productivity increases
when an organisation improves their KM
index (in other words, increased KM activity
aids productivity).
The transition from 1 to 3 on the KM
index improves labour productivity by 9
per cent and increases the company’s
operating margins.
Preservation and transmission of
critical knowledge
In 2012 Schlumberger Business Consulting
(SBC)3
compared 37 companies within the
oil and gas industry in terms of the time
required for their experts and engineers
to become independent (i.e. ‘time to
autonomy’), that is to say, the time it took
them to make nonstandard and original
technical decisions. The conclusion was
that, an ‘innovative’ organisation gains
between three and five years of autonomy
as opposed to a ‘traditional’ company (see
Figure 3). SBC verified that one of the main
Figure 1: Degree of KM and performance in terms of innovation (The Importance of KM in the business sector, OECD,
November 2004)
46
54
58
60
63
13 13 14 15
17
0
10
20
30
40
50
60
70
0 1 2 3 4
% Ability to Innovate
Innovation strength
Average: 0.9
Knowledge management index

55
AVERAGE TIME TO AUTONOMY ACROSS DISCIPLINES
Number of years necessary to reach ability level
Time to autonomy is the time required for a company to drive PTPs
to make non-standard, original technical decisionsYears to Autonomy
Western Independent
Majors
International NOCs
NOCs
14
12
10
8
6
4
2
0
Ability to ... Execute
assigned tasks
... Choose
among several
standardized tasks
... Make non-
standard,
original technical
decisions
... Make personnel
decisions (recruitment,
transfer etc)
6.7
11
8.2
11
Figure 3: Time to autonomy – Time required to reach nonstandard and original technical decisions (Source: SBC O&G
HR Benchmark 2011)
0
0 1 2 3 4
%
Average: 0.9
2
4
6
8
10
12
14
Knowledge management index
Productivity gains
Figure 2: Productivity gains
reasons for this increased performance was
the widespread use of KM.
Indeed, in the 2011 Schlumberger
study,4
they suggest there are four factors
which influence the ‘time to autonomy’:
„„ The investment in training;
„„ The length of graduate
development programmes;
„„ The use of blended learning; and
„„ The use of KM.

56
AUS
GBR
ZAF
USA
CHN
0% 20% 40% 60% 80% 100%
Receiving and managing information Using information
(Total professionals – by country)
54%
52%
51%
50%
47% 53%
51%
49%
48%
46%
KM practitioners should consider this when
approaching their own KM measurement
activities and if possible the effect KM has on
an organisation’s employees’ ability to make
decisions should be shown.
Saving time and reducing the cost of
processing information: What if KM
made the difference?
Information overload
In 2010 LexisNexis5
– a leading global
provider of content-enabled workflow
solutions – conducted a workplace
productivity survey among a sample of
1,700 white collar professionals across
five countries. Interviews were conducted
in the United States (USA), the United
Kingdom (GBR), China (CHN), South
Africa (ZAF), and Australia (AUS). The
study included 300 non-legal professionals
and 200 legal professionals in the US,
and 200 non-legal professionals and
100 legal professionals in each of the
other markets.
LexisNexis found out that: ‘Information
overload is pushing white collar workers to
their breaking point. White collar workers
are struggling to cope with a flood of
information which has only grown in size
since the economic downturn. The survey
findings show how pervasive this problem is
around the globe. White collar workers say
they are close to the breaking point, and
that information overload is taking a heavy
toll, both psychologically, and in terms of
productivity in the workplace.’
Workers reported that they spent just
as much time receiving and managing
information as they did using that
information which can obviously be very
time-consuming (see Figure 4).
Figure 5 further shows the effects
information overload has on workers (who
find it difficult to concentrate and get their
work done). Workers reported that they
became discouraged due to the fact that
they could not manage all of the information
they received.
Figure 4: Receiving and managing information vs using information (Source: ‘International Workplace Productivity Survey
White Collar Highlights’, LexisNexis, 2010)

57
KM can make a difference
What is the solution to this information
overload? Knowledge management
can make a difference and can have a
measurable return for organisations by way
of helping to abate the problems associated
with information overload. One of the
main arguments in favour of knowledge
programmes is that they enable workers
to manage information efficiently. KM as
practiced today is proven and can measure
a true return on investment. This can be
called: ROK™: Return on Knowledge.
The following sections show how KM,
and KM tools in particular, can be proven
to have a valuable impact on an
organisation and they highlight the ways
in which knowledge workers/projects can
generate a return.
Developing KM
Capitalise
According to a Nielsen survey,6
which was
reproduced by Gartner and IBM, in most
online communities 90 per cent of users
are information seekers, 9 per cent of users
are occasional contributors, and 1 per
cent of users account for almost all of the
contributed work. Without capitalisation,
organisations run the risk of losing critical
‘know-how’ which resides in the individual
knowledge of its employees. IBM for instance
demonstrated in a study by analysing its
own internal data, that 7.5 per cent of the
information stored within its computers is
lost after 3 years, and the value of the
personal property stored on personal
computers may vary, depending on the
sector of activity, from €4000 (within
distribution, clothing, and home automation
equipment) to €15,000 (in aeronautics,
computing, and health).
What is the key message here? It is
essential to encourage knowledge workers to
raise their level of contribution and develop
their hidden knowledge by applying a
proactive strategy and by providing the right
tools! By increasing the contributors’ rate to
10 per cent, on the basis of an organisation
with 250 employees, a shared and long
term information gain can be estimated at
€107,000 per year.7
Transfer and distribute
A survey conducted in March 20128
on
behalf of Mindjet with a sample of 1,000
(Total Professionals – by country)
% Strongly/Somewhat Agree
100%
80%
60%
40%
20%
0%
USA GBR CHN ZAF AUS
70%67%67%
58%
52%
Figure 5: The Impact of information overload on performance at work

58
people working in France showed that a
quarter of all received e-mails are not read.
The survey also showed that 80 per cent
of received information is shared which
increases information overload.
By suppressing unnecessary sending
and re-directions of emails, the company
will save time and create opportunities
(that is, facilitate the dissemination of
solutions and best practices) which in
turn creates value. Based on 250 people,
economies of scale and Return on
Knowledge (ROK™) can be estimated at
€1 million per year.9
Co-ordinate and drive
According to an IBM study in 201210
only
19 per cent of the survey’s respondents
regularly used collaborative technologies
to identify individuals with relevant
knowledge and skills, 23 per cent to
preserve critical knowledge, and 27 per
cent to spread innovation more widely
(see Figure 6 below).
If you divide by a factor of between 5 and
10 the time it takes to manage your expert
networks, based on the people in charge of
these missions, organisations can gain 190
days in terms of work value equivalent to
approximately €46,000 per year.11
Reduce the cost of processing
information
Help to find
According to a white paper published by
IDC,12
an employee spends 10 per cent
of their time searching for information. A
good knowledge management tool will allow
them to reduce the time to identify the right
person or locate useful information and
at the same time increase the number of
searches accomplished.
By gaining 10 per cent of an employee’s
time, on the basis of 250 employees in an
organisation, the organisation will save 650
days of work time per year, which represents
a value of €160,000.13
Help to Produce
According to the same IDC study, ‘knowledge
workers’ spend 8.5 per cent of their time to (re)
create content. Organisations should provide
a KM tool that allows employees to reduce the
time to (re)create content and combine them
into a single database which allows files to be
stocked whatever their different formats.
By gaining 5 per cent in terms of time
on the basis of an organisation with 250
employees, the organisation will gain 350
days of work time per year, which represents
a value of €85,000.14
Are companies making the right connections?
Enable global teams to work more effectively
Spread innovation throughout the organization more effectively
Preserve critical knowledge
Not much Somewhat To a large extent
Identify individuals with relevant knowledge and skills
41%
46%
49%
55%
26%
27%
28%
26%
33%
27%
23%
19%
Figure 6: Are companies making the right connections? (Source: Working Beyond Borders – Insights from the Global
Chief Human Resource Officer Study, IBM, 2012)

59
Gains per year for a 250 person knowledge network
Knowledge Valorisation
Capitalisation 107 k€
Transfers 1,000 k€
Coordination and piloting 46 k€
Subtotal 1 1,153 k€
Cost reduction by using information
Find 160 k€
Produce 85 k€
Distribute 190 k€
Audit 100 k€
Subtotal 2 535 k€
Provisional total gain per year 1,688 k€
Provisional total gain per year for person 6,750 k€
Figure 7: ROI calculation as per the IDC study
Help to distribute
The IDC white paper also reveals that 8
per cent of an organisation’s workers’ time
is devoted to disseminating information
across multiple channels and applications.
If the company provides a tool that diffuses
and automatically multi-indexes information
within multiple networks based on the
recipients profile and without changing the
environment they can gain work time. For
example, by gaining 15 per cent in terms
of time, on the basis of 250 employees,
the organisation will gain 780 days of
work time per year, which represents a
value of €190,000.15
Help to audit
Finally, the study shows that 12 per cent
of working time is spent on managing
versions and the historical data related
to important documents. KM should
be encouraged to reduce this time and
organisations should be willing to provide
a tool that ensures exchange traceability,
archiving of content versions, and guarantee
latest information availability.
By gaining 10 per cent of time on the
basis of 250 people, the company will
gain 410 days of work time per year, which
represents a value of €100,000.16
Conclusion
Using the calculations above and the
identified areas where KM can prove a
valuable return, knowledge management
practitioners can create a table to show the
gains in terms of ROI (or ROK™) as follows:
Based on the example shown in Figure 7,
and based on the IDC study figures, the
following results could be reported:
 €5,000 to €7,000 per knowledge
worker per year;
„„ Significant qualitative results; and
„„ Productivity gains equivalent to
€1.6m per year based on 250 employees
working within a performing network.

60
(Note: the calculations given in Euros
here can be adapted for different
organisations. The calculations are all
detailed in the references at the end of
the article.)
In conclusion, a brief note on
knowledge networks is required. Using
the information above and creating
a table to show the returns that KM
projects and tools can bring to an
organisation, management can be told:
‘I have proved that we can potentially
obtain significant gains in pursuing a
KM strategy. Let’s keep in mind that
the ROK factor will be all the more
important when our organisation
implements and depends on networks
centred on structured knowledge. For
us, networks and knowledge are
inseparable, networks are where
knowledge is created, shared, validated,
and reused. In other words knowledge
resides in the networks, which in turn
are the basic principles of social KM.’
What will be expected of these
knowledge networks?
„„ To record, index, and classify basic
lessons learned and feedback; and
„„ To create links and processes for
knowledge transfer, for example transfer
of knowledge from senior professionals
to juniors.
The value of KM, therefore, lies within
the network, i.e. value comes from the
collective connection of individuals,
activities, or processes. Any organisation
must take into account the impact of
networks on knowledge organisation.
They are not only guarantors of the
preservation of our knowledge but must
also support the numerous opportunities
for innovation.
References
1. ‘The Importance of KM in the Business Sector’,
OECD, November 2004.
2. ‘The Importance of KM in the Business Sector’,
OECD, November 2004, p.5.
3. ‘2011 Oil & Gas HR Benchmark’, Schlumberger
Business Consulting (published 2012).
4. ‘2010 Oil & Gas HR Benchmark’, SBC
Institute for Energy Studies (published 2011).
5. ‘International Workplace Productivity Survey White
Collar Highlights’, LexisNexis, October 2010.
6. See: www.nngroup.com/articles/
participation-inequality/.
7. Detailed calculation: Increase of %
contributors x % Information perpetuated x
Number of employees x Value = (10% – 1%)
x 50% x 250 x 9500 = €106,875.
8. See: www.mindjet.com/press/releases/
fr_2012-07-18_enquete?lang=fr.
9. Detailed calculation: {(Increased number of
generated applications x Value generated)
+ [(Decrease in the number of unnecessary
mails x time + % Reduction in the number of
messages transferred x Time)] x Number of
employees x Cost] x Number of days worked =
[( 2 x €1,000) + (2 emails x 1min + 10% x 35
x 10min) x 250 x €35]} x 220 = €1,065,625.
10. ‘Working Beyond Borders – Insights from the
Global Chief Human Resource Officer Study’,
IBM, 2012.
11. Detailed calculation: Number of persons x
Weekly Charge (h) x % Time saved x Number
of weeks = 7 x 4 x 90% x 52 = 1310 h =
187 days and average hourly cost = €35.
12. ‘The Hidden Costs of Information Work’,
IDC, 2006.
13. Detailed calculation: Time spent per week x Time
saved x Number of employees x Number of
weeks = 3.5 x 10% x 250 x 52 = 4550 hours
= 650 days and average hourly cost = €35.
x Time saved x Number of employees x Number
of weeks = 3.8 x 5% x 250 x 52 = 2820 hours

61
weeks = 2.8 x 15% x 250 x 52 = 6240 hours
weeks = 2.2 x 10% x 250 x 52 = 2860 hours

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