Knowledge Management: How To Measure What Really Matters

Knowledge managers often say that a considerable challenge in implementing knowledge management is demonstrating how those investments provide value to the organisation. Many knowledge managers have encountered a skeptical executive or two who, after the KM presentation, leans back in the chair and asks: "Show me the ROI". 
Show me the ROI

How can one measure the ROI of an attitude?

At the beginning of the implementation process, knowledge managers often need to demonstrate the value in order to gain full support from senior management as they need to make investment decisions to fund it and they want to be sure the investment will be worthwhile.
Because of this, knowledge managers often select an area of the business that is struggling through poor KM, take a baseline metric, introduce KM through a pilot project, and then measure how much the metric improves from the baseline. 
The metrics chosen need to answer a single question:"Does this metric indicate in any way if knowledge is being shared and used". The selected metrics should be:
Carefully Chosen:
Not all metrics provide complete data. For example, "time saved" doesn't mean that the employee spent the saved time productively. 
Compared to a Baseline or a Benchmark:
Before implementing a KM system, a current level of performance should be noted and a baseline established, against which performance may be measured during and after implementation.
Integrated within existing measurement systems:
If an organisation already has measurement mechanisms in place, integrating the KM metrics into the existing system is the way to go. Also, if an organisation values charts and statistics over stories and examples, that is the way the metrics should be reported.
Finding the right fit for capturing, analysing, and reporting metrics is as important as the KM initiative itself, because metrics show the results of the resources used to achieve the desired end-state. 
KM is introduced for sound business reasons and its introduction should result in visible improvements to the business, such as improved efficiency and effectiveness, and changes in culture and behaviours as not all business outcomes will be financial, but they need to be measured.

What about the big picture?

Companies measure their success through profits, but how can this metric be attributed to knowledge management? There's one way. Increase the return on talent!
The return on talent, or as McKinsey calls it, profit per employee, is based on the fact that companies can create wealth either by increasing the profit per employee, by increasing the number of employees earning such profits, or both. Calculating the return on talent would be a more powerful model of measuring success in a digital environment where the intangible assets that talented employees create provide the greater part of new wealth. 

It is the talent, not capital, that drives the creation of wealth.

How can knowledge management help here?

There is a well-known reason we value experts in any organisation, and that reason is their ability to answer the question with the correct answer.
You see, we all know how great it is to talk to an expert who can quickly solve a problem from their wealth of experience, and the biggest difference between an expert and an apprentice is that an apprentice can't answer our question or may even give us the incorrect answer.
If that answer is stored somewhere and is accessible to all non-experts across the company, or an organisation, the non-experts will learn and eventually become experts, and their work will help improve sales, marketing efforts, HR and ultimately increase profits. 
The return on talent focuses on intangible value propositions and, consequently, on talented people who, with some investment, can produce valuable intangibles.
This requires a shift in thinking. Executives should assess how much profit per employee the company generates, but should also monitor the returns on invested capital. The growth of the company (the increase in employees) should lead to increased profits, and the company can safely invest in knowledge management to help increase profits relative to the number of people a company employs. 
The goal of KM is to reorient financial performance metrics around talent, and measuring the return on talent is the easiest way to do it. 
We've specifically designed a software with this in mind, and you can view it for free.


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