Measuring Knowledge

Knowledge Management

Why &What Do You Measure?

- Carl Frappaolo Information Architected, Inc.

Would you trust the evaluation of your company

to this man?

“Accounting, is increasingly irrelevant. “

- Baruch Lev, Professor of Accounting and Finance at NYU's Leonard N. Stern

School of Business

“In this new world, information is king. The more information you have, the better and faster your analysis, the greater the probability that you will make winning investments.”

Geoffrey Moore - Inside the Tornado

Knowledge Needs to be Measured

Before it is Managed (and appreciated)

 Realization/Accounting  Validate/ROI  Control

But To What End?

Realization/Accounting  Standard & Poor’s 500; Market to Book ratio

– 1929: 30/70% – 1990: 63/37% – 2001: 84%/16%

 Example: IBM Acquired Lotus; $1.84 billion estimated in Intellectual Capital  Several Approaches  Primarily Focused on Intangible Assets

 Innovation/R&D (KM)

 Power of Brand Identity (Face of KM)

 Process/structural improvements (Deployment of KM)

 Monopolies/Cost of Entry

Realization/Accounting

 Structural Capital

 Human Capital

 Customer Capital


 Market Capitalization

 Average Normalized Earnings

 Scorecards/Direct IC

 Return on Assets

 Return on Innovation

 Return on Value


 Market Cap - stockholders equity = IC

Market Capitalization

 Avg (Past Earnings + Consensus Forecasts of analysts for future earnings) – reasonable estimate on physical assets = IC

 KM value + Brand + Customer base)

Average Normalized Earnings

 Estimate of IC via its components.

 Identified and evaluated either individually or as an aggregated and/or correlated coefficient.

 More focused on internal health than financial stability

 Direct IC Attempts to estimate a dollar value

Scorecards/Direct IC

Internal External

Awareness

Responsiveness

Scorecards/Direct IC  Example: Traversing the Knowledge Chain

 Avg pre-tax earnings for x years / avg intangible assets for x years = Avg ROA

 (Avg ROA - Avg ROA per industry ) * Co avg tangible assets = avg earning from IC

Return On Assets (ROA)

 Focus On Specific Intellectual Asset Property Management Systems (IAPMS)

 $1 trillion In Intellectual Assets

 Spurred By Need To Look For Alternative Means To Revenue


 Example: Patents as Intellectual Property

 Intersection of Employee Competence, External Structure and Internal Structure

 Alignment With Core Goals and Competencies

 Specific Infringement Focus and Partnering Opportunity


 Employee Competence (Relevance and talent pool)

 Number of reported inventions/employee

 Number of filings/employee


 Internal Structure (portfolio maturity, growth and value)

 Average age of patent rights

 % patent rights not yet published

 Total number of patent rights

 Total patent inventions

 Number first filings


 External Structure (External value)

 % commercially used by company

 % patent licensed to others/coopetition

 % involved in disputes

 % time spent in litigation


 Aggregate Alignment

 % sales protected by patents

 % of income from licensing patents rights

 % of new-to-market- products protected by patent rights

 Sales protected by patent rights/R&D expenditure

 Licensing income/R&D expenditure

 Total patent costs/R&D expenditure


ROI %Profit #Yrs Sustained Yrs

2.5 50 1 5

2.7 80 3 10

13.5 90 1 15

1.5 50 10 30

1.0 100 20 20

 ROI = ((% of Profit/100) * ( Sustained Yrs / #Yrs ))

Return On Innovation

 Focus on Value Not Costs

 Requires Strong Sponsor With Vision

 Must Be Aligned With CSF/Explicit

 High Business Impact, Results That Are Transferable and Practical

Return On Value

Validate/ROI

“KM is about creating value based on the intangible assets of the firm . . . .”

- Hubert St. Onge

“But sometimes the CFO gets obstinate.”

- Carl Frappaolo

Validate/ROI

Validate/ROI  Red Flag Not a Stop Sign

 Align With Vertical/Specific Hot Buttons

Validate/ROI  Focus On Tactical, Tedious/Undersell

 Reduction in Floor space  Time Saved Not asking questions  Less time answering questions/recreating answers and solutions  Less time receiving and reading irrelevant email/sources  Cost of a wrong answers  Reduced travel time and expense  Reduced employee turn-over  Quicker employee assimilation

Validate/ROI  Leverage These to Go Forward

 Pilots Versus Full Scale Implementation

 Audits After The Fact

 Never Underestimate The Power Of Culture

Control

 Big Brother vs.Encouragement and Recognition

 Control to encourage and promote community

Control

 Monitoring and tracking Individual and team-based authoring, reading, collaboration, projects, search

 Value is in brokering tacit knowledge owners and fostering new alliances

Control

 Proactively Approach Incentivization Paradox

 Input, Usage, Collaboration, Results

 Align Reward With Culture

Control

Further Discussion? – Carl Frappaolo –  [email protected] –  617-933-2584