Knowledge Management Insights | how to report the value of KM
The value of KM | Award-winning Knowledge Management Impact
"Out of a record 147 submissions, the Indiana CPA Society received the prestigious 'Power of A' Summit Award from the American Society of Association Executives for its innovative CPA Center of Excellence®.
The award was presented in Washington, D.C., The 'Power of A' Awards are an annual showcase for how associations leverage their unique resources to solve problems, advance industry/professional performance, kickstart innovation and improve world conditions. It’s one of the highest honors an association can receive.
INCPAS became the first state CPA society to win a Summit Award in the award's 17-year history. ASAE called the CPA Center of Excellence® "an initiative to better prepare CPAs for the opportunities and challenges of the future." The Center was selected for the award because of its ingenuity, collaboration, and a focus on the future.
The CPA Center of Excellence® is a comprehensive initiative created to better prepare CPAs for the opportunities and challenges of the future...it has created new assessment and learning opportunities for the vital knowledge and learning skills that will set CPAs and other professions apart from colleagues and ensure their continued relevance as more accounting and finance functions become automated. The skills covered include leadership, communication, critical thinking, decision making, entrepreneurship, and networking and collaboration."
From 2011 to 2017, I worked with Gary Bolinger,one of Accounting Today’s Top 100 influencers in the United States Certified Public Accounting (CPA) profession, on a national award-winning Knowledge Management project.
My time working with Gary brought me to review how Knowledge Management creates value, something that the KM International Standard (Knowledge Management ISO 30401) fails to adequately consider.
Over the five years I worked with Gary, I developed a deep insight into the world of value creation, informed by The International Integrated Reporting Council (IIRC).
The following is a summary of The IIRC’s approach to reporting value creation, which has been adopted by companies such as Coca-Cola and Deloitte. The IIRC framework has been the secret to my success when it comes to solving the tough Knowledge Management challenges that organisations face today, and I hope you find it to be as powerful for you as it has been for the organisations I work with.
How to report the value of KM | Start by considering whether you create Knowledge Management value through luck or design
Fundamentally, as a Knowledge Manager you need to be aware of how value is created in your organisation – simple! If you are not aware of or how value is created, then any Knowledge Management success you experience will be by luck, not design.
Knowledge Management Value starts with activities, relationships and interactions
For a Knowledge Manager, this means that any activities, relationships and interactions happen with the intent to positively influence the financial capital of the organisation.
Example of Knowledge Management value creation through activities
If a Knowledge Management team launch a new Lessons Learned portal then it is expected that the effect of that portal will enhance improvements to safety, time, innovation, quality, cost or employee/customer experience.
The Knowledge Management value proposition can then be monitored, measured and evaluated using a structured ROI method that explores user feelings, access/application, impact, results and ROI (see more information later in this blog).
Knowledge Management activities, relationships and interactions increase, decrease & transform Capitals
Knowledge Management value is measured by how value stocks are increased, decreased or transformed as a result of Knowledge Management activities. Value stocks are grouped into four key capitals that every Knowledge Manager should be aware of:
Financial capital – The pool of funds that is:
– available to an organisation for use in the production of goods or the provision of services
– obtained through financing, such as debt, equity or grants, or generated through operations or investments (www.theIIRC.org)
Intellectual capital – Organizational, knowledge-based intangibles, including:
– intellectual property, such as patents, copyrights, software, rights and licences
– “organisational capital” such as tacit knowledge, systems, procedures and protocols
Human capital – People’s competencies, capabilities and experience, and their motivations to innovate, including their:
– alignment with and support for an organisation’s governance framework, risk management approach, and ethical values
– ability to understand, develop and implement an organisation’s strategy
– loyalties and motivations for improving processes, goods and services, including their ability to lead, manage and collaborate (www.theiirc.org)
Social and relationship capital – The institutions and the relationships within and between communities, groups of stakeholders and other networks, and the ability to share information to enhance individual and collective well-being. Social and relationship capital includes:
– shared norms, and common values and behaviours
– key stakeholder relationships, and the trust and willingness to engage that an organisation has developed and strives to build and protect with external stakeholders
– intangibles associated with the brand and reputation that an organisation has developed
– an organisation’s social licence to operate (www.theiirc.org)
Example of Capitals at work:
A Lessons Learned portal can decrease financial capital through the initial investment in technology and staffing. However, financial capital can be said to have been transformed into social capital, where shared knowledge increases social capital. In this way, stocks of value can be seen to increase when a Lessons Learned portal reduces safety failures; learning cycle times; produces innovations to products, systems or processes; time to launch a new service; quality failures; the number of dissatisfied customers.
How to report the value of KM | Six critical steps in the Knowledge Management value creation process
1. Take into account the external & internal environments.
Any Knowledge Managment project is influenced by internal and external starting conditions – think Political, Economic, Social, Technological, Environmental, Demographic, and Cultural.
For example, a Knowledge Management project governed by a Liberal Market Economy will have very different starting conditions from a KM project in a Coordinated Market Economy; these starting conditions will influence values, beliefs, behaviours, structures and processes (rituals) inside the organisation and, therefore Knowledge Management value creation.
By continuously monitoring the external and internal environments, you can identify risks and opportunities that materially impact the future of the KM function or the organisation.
Considering the Guiding Principle, Materiality, the organisation’s approach to any real risks (whether they be in the short, medium or long term) that are fundamental to the ongoing ability of the organisation to create value and that could have extreme consequences is ordinarily included in an integrated report, even when the probability of their occurrence might be considered quite small - www.theiirc.org
2. Create a Knowledge Management governance structure
Knowledge Management needs to ensure that there are appropriate macro and micro oversight structures in place to monitor, evaluate and report on the ability of the function to create value.
Excerpt from “Is Creating a Successful KM System Really That Simple?”
Where I’ve seen software implementation fail is where people don’t recognise that learning and knowledge is a human condition. You can build the best taxonomy, the best processors, the best information architecture, it can be brilliant, but they need to be able to use it, and they will be the ones who determine whether it will succeed or fail. It is here that partnering with HR is necessary.
We, as knowledge managers, have to find out what motivates people, what their pain points are if they will engage with the software, will they feel good about it. For example, we found out that people, when they create a document, don’t actually understand how to make that document findable for other people. They think that just adding keywords and a little bit of metadata will make it findable. We help create governance documents that explain to people what they need to do, and we are proactive in auditing that system. We create audits, report on value, on findability so that we can start finding gaps quickly.
To further illustrate my point, I’ve just finished a big project in the USA, a SharePoint intranet implementation. We discovered that the SharePoint provider did not provide any type of governance or understanding of governance, and the system was failing. Just by putting in place the governance structure where we are now auditing the content, making changes to the content so they can report on it, is making a huge difference. In terms of value added, any software vendor who brings that to the table understands what KM is all about - Is Creating a Successful KM System Really That Simple?
3. How does the Knowledge Management Business Model create valuable outputs?
Knowledge Management’s activities and outputs MUST lead to outcomes that impact (create demonstrable change to) financial, human, intellectual or social/relationship capitals – think back to activities related to safety, time, innovation, quality, cost and customer/employee experiences.
Also, Knowledge Management activities need to be dynamic, in that seek macro and micro feedback and can adapt to changing user/business needs.
4. How does the Knowledge Management Business Model create activities?
Business activities include the planning, design and manufacture of products or the deployment of specialised skills and knowledge in the provision of services. Encouraging a culture of innovation is often a key business activity in terms of generating new products and services that anticipate customer demand, introducing efficiencies and better use of technology, substituting inputs to minimise adverse social or environmental effects, and finding alternative uses for outputs - www.theiirc.org
5. What is your Knowledge Management strategy, and where will you allocate your resources?
A Knowledge Management strategy should set out how the function will mitigate risks and maximise opportunities for the organisation.
A good Knowledge Management strategy should set out KM’s short, medium and long-term objectives, as well as the plans in place to achieve those objectives. Any plans should also include the resources in place or needed to achieve the plans, as well as definite statements as to how the performance of KM activities, relationship and interactions will be monitored and measured.
An excellent knowledge Management strategy and resource plan should also consider what changes need to take place in relation to values, beliefs, behaviours, structures and processes for the chance of success to be optimised.
6. How will you monitor and measure Knowledge Management value?
To help answer the Knowledge Management value reporting challenge, I developed the FAIRR value model which has been used to great success over the last ten years.
Level 1 – Feelings: Here you want to know how people feel about systems, processes, tools and frameworks deployed to enhance the knowledge effort (think about lessons learned structures and community of practice portals through to job design frameworks and appraisal processes that influence knowledge-based activities). This requires a process of employee engagement (e.g. surveys and focus groups). Any negative feelings need to be analysed, synthesised, and actions need to be seen to be taken; negative feelings will amplify throughout the FAIR framework and will impact ROI.
Level 2– Access & Application: The access of resources (e.g. people, reports, lessons learned, communities) demonstrated applications perceived value – for example, a person believed that it was worth their time to make contact with a person or accessed a knowledge repository to find an answer to a question.
A lack of access or application could be caused by various reasons – for example, barriers that surface in Level 1. It is also possible that the resources available are just not seen as being valuable enough (perceived value not meeting the needs of the real-time situation – leading to repetitional damage, where lessons learned systems are believed to be worthless) and therefore are no longer accessed.
Analytic tools can assist you here, from network analysis tools through to document views/hits.
Barrier example: Negative feeling toward your knowledge services (e.g “Sharepoint just doesn’t let me run a community of practice the way I need to” or “our Lessons Learned don’t tell me anything I don’t already know – I learn more over a beer in the bar with the project manager”).
Level 3 – Impact: You need to demonstrate that people who access knowledge are doing something with it. For this reason, you need to explore impact (i.e. a contribution to an evident change in behaviour (people or process-based). If people cannot demonstrate a shift in practice as a result of accessing knowledge resources, then it could be because the knowledge being accessed is not valuable enough – in other words, the perceived value of the knowledge (person or artefact) does not align with the real world problems people are facing.
It is unreasonable to expect that you will demonstrate how every single knowledge asset (person or artefact – think documents/schematics through to processes) creates an impact in your business. Therefore you have to take a credible sample of the population. To do this, you will need to calculate the sample size required to achieve a minimum of 95% certainty in your findings (a +/- 5% error rate) and, to enhance credibility, you should take a random selection approach to populate your sample.
Barrier examples: Negative feelings at Level 1. A lack of access at Level 2.
Level 4– Results: Knowledge is being accessed, and you can demonstrate that it contributes to a change in behaviour. Now, using the sample collected in Level 3, explore quantifiable outputs from the change in behaviour; this could take the form of a reduction in error rates, a decrease in duplication of effort or efficiency/effectiveness savings that reduced the cost of doing business etc. This data will allow you to explore median results from your knowledge effort through to contributions to human, social and intellectual capital that impact the market value of the business.
Barrier examples: Negative feelings at Level 1. A lack of access at Level 2. A lack of impact at Level 3, which could surface as a problem at Level 1, where people speak in negative terms about the value of the resources they have access to.
Level 5– ROI: The final part of this ongoing process is to synthesise the data in Level 4 to generalise, with 95% certainty, the Return On Investment for the organisation’s knowledge effort.
Barrier examples: Negative feelings at Level 1. A lack of access at Level 2. A lack of impact at Level 3, which could surface as a problem at Level 1, where people speak in negative terms about the value of the resources they have access to. People do not have the awareness or understanding to discuss, or they do not see the value in reporting, impact, and, therefore, the value of the knowledge effort is lost at Level 4.