I’ve just been speaking at KM Asia on the links between KM, the strategic drivers of innovation and growth, and people. And, if you are willing to accept people at the core of the process, the need to negotiate with HR partners to optimise KM processes – some of the slides can be found here.
Anyway, cutting a long story short, during the workshop on the second day we tackled the poisoned chalice of KM ROI using those same links. The following is one example of an ROI calculation from a company we worked with in Singapore [the numbers have been slightly changed to protect the innocent...and to make calculations a little simpler]:
Company X has 25,000 employees with a 3% annual turnover rate and an average of 3 years within the company before separation, with an average annual salary at separation of £25,000. The company is committed to ongoing development and invests 4% of salary spend on learning and development programmes. This is a knowledge intensive organisation and 90% of training expenditure is invested to improve managerial knowledge processes, with the other 10% being training-centric interventions around technical knowledge processes. Technical knowledge processes can have a limited life-cycle; as processes are updated existing knowledge is superseded through process change, thereby making the existing knowledge at least partially redundant – Therefore, it could be argued that there is little value in attempting to capture this knowledge.
If we agree that KM is responsible for protecting what the organisation knows, after all, KM is about acquiring and storing knowledge (including what we already know), then we also have to accept that KM needs to work to protect the organisation’s L+D spend.
3% (turnover rate) of 25,000 employees = 750 employees exiting the organisation per annum
750 employees in post for an average of 3 years = 2250 years in organisation time
2250 x £25,000 average salary = £56,250,000 total salary outlay
4% of total salary outlay = £2,250,000 raw cost of L+D spend on 750 employees over 3 years
less 10% redundancy factor [redundant technical knowledge - compliance/process driven] = £2,000,000 L+D spend exiting the organisation
If we can make the assumption that KM can capture 40% of that ‘experience’ through object and process capture, then KM could be protecting £800,000 of the organisation’s investment in human resource development that is currently exiting the organisation.
Now, take the actual cost to deliver on the promise of an assumed 40% and you can formulate your ROI [don’t get me started on the argument of how you quantify experience and expertise, but these are the figures managers want to hear…no matter that they are based on non-quantifiable assumptions — see my post on the ‘ROI Myth’. As an illustrative tool, this can stimulate a very powerful discussion and bring currency to KM outputs…if, that is, you buy in to the links between innovation, people, learning and expertise.
This does not account for ‘growth factors‘, where the effect of L+D interventions ‘grow’ in combination’; nor does it account for ‘amplification factors‘, as learning is transformed through application to knowing and, through variety or repeated application, expertise.
How much of this expertise is worth capturing? Is it worth protecting the organisation’s L+D spend on managerial knowledge development? What cost to relearn what we already know? Is there a risk to operational capability/capacity or competitive advantage if we don’t respond to this? For me, the answer has to be, yes!
Expanding on this for a moment, thanks to Kirsty Areki for prompting the need for clarification, it can not just be about the capture – static organisations will focus solely on the Capture and Storage; dynamic organisations will move beyond this to focus on Using, Sharing and Developing
One senior manager attending KMAsia 2011 said that he wasn’t overstating his position to say that his 12 years of international corporate expertise was worth £1,000,000 – and he could justify it! KM should surely be responding to this and, in doing so, we can improve the currency and credibility of our function.
Anyway, if nothing else, I hope this is an interesting point of discussion…and thanks to all those who attended the workshop and keynote in Singapore; your enthusiasm made the journey worth while!
Let the debate begin…