Measuring Knowledge Management ROI

Mounted skeletons of Tyrannosaurus (left) and Apatosaurus (right) at the American Museum of Natural History

I was having a conversation the other day which reminded me about a similar conversation that I’d had a couple of years ago — regarding organizational insistence upon measuring the Return-on-Investment (ROI) of knowledge management. Back then I’d said that continuing to fixate on a supposed need to determine ROI was a little like asking for the same regarding having a telephone or email — where at this stage of the game if the organization is still unsure if they receive a “pay back” on having a phone or email…well, I’d kind of think of them as a bit of a ‘dinosaur brain’ anyway. It seems that not much has changed in that regard – organizations are still trying to determine the ROI of…sharing knowledge.

And I do think that this is indicative of one of the bigger problems that we are still facing in KM. At this stage of the game, as a consultant, I’d be horrified to have a client tell me that they were trying to determine the Return-on-Investment (ROI) for having a telephone. I’m not talking ROI on purchasing a particular system (although I wouldn’t be exactly thrilled over that conversation either), just whether having a telephone (or cell phone) is worth it or not. Or that perhaps it was time to reconsider having email. Or how about internet access — seems that’s being used a whole lot in many (sarcasm) organizations today but how can we be sure that there is a benefit in doing so? The thing though is that I have nearly as much of a problem when I bump into someone who is still, at this point, wondering whether they should consider giving KM a try. Share knowledge? Collaborate? Connect people? Sounds kind of radical. And then they ask me what kind of ROI they can expect.

In response my favorite answer is to ask them what kind of ROI they want. Because when the conversation about KM implementation begins with trying to determine the ROI, the short answer is to simply suggest that you provide the ROI they want (to those who approve budgets). Don’t get me wrong, I’m not talking about “making it up” but I am suggesting that if you fixate upon ROI then you are probably unaware of the fact that you can easily come up with a quick list of ways to game ROI so that it **is** whatever you want it to be. All in accordance with Generally Accepted Accounting Principles. I can accelerate return, I can not include all costs, I can tinker with the cost of money, and on and on and on.

I’m not suggesting that this is something to “go do.” This is meant to be a “shock to the system” in hopes that the organization wakes up and realizes that chasing ROI, especially in KM…is perhaps not a good thing.

Let’s just take a basic issue and explore it for a moment. Let’s talk about realistic ROI and KM. Let me point out that if you read Kotter or any other major treatise on organizational change you’ll quickly learn that it takes a good 5-7 years to successfully implement systemic change within an organization. The short of it is that we’re talking about systemic and things that are complex to change — such as individual and organizational behavior. (Perhaps you’re already getting a sense of where this is heading?) So, if we know that this change cycle is pretty much a given (seeing as how it is a central concept to nearly all significant organizational change theory), then why would we expect KM to be different?

What I’m asking is this — suppose you have an organizational culture where currently there is little ongoing knowledge sharing. And very little collaboration. And trust is a major problem. Communications? Well, let’s say that the shadow communications outpace the official ones and are even much more accurate. So what would possibly suggest that these problems will or can be overcome in a short period of time anyway? That flies in the face of organizational change theory. And I’d suggest that all of those issues will have significant impact upon an organization’s ability to successfully implement KM.

Now let’s say…(stay close to the tour guide)…that you’re sitting around in your organization….and up comes a conversation about “something” (anything) that is being suggested for KM implementation. And someone at the long table begins to ask questions about the ROI. Hear that noise? That little warning bell going off in the back of your mind? That’s telling you that there is a big problem — someone is going to want to pin KM ROI to a typical corporate ROI “cycle.” And what is that? Just look around. I would suggest that you are most likely to find all ROIs “pitched” as if they will solve all world problems AND recover costs in anywhere from 6-18 months. Seriously. (Warning bell a bit louder now?)

So the alarm bell is providing a warning for you — that those who are talking about ROI and trying to associate it with KM…in fact may well lack a real foundation in understanding ROI (and exactly which **type** of ROI are they discussing? as there is more than one anyway!) and they clearly have missed one important concept/aspect of KM: that much of what KM may address will need to have an ROI that is much longer than 6-18 months. More like years actually. An easy way to consider the problem is that when someone asks me how long it will take to get the organization to the point where it effectively shares knowledge, I like to say that I don’t know…and then ask how long it took them to get to the point where they stopped sharing knowledge (sort of like knowing how much it will take to fix the problem by knowing how much they took to create the problem).

And then there is the whole arguement about whether KM ROI predictions can ever be realistic anyway. What, I’m going to somehow predict exactly how well future collaboration will go? (And if you can, please CALL me soonest as I’d like to ask your opinion about 52 numbers and something called the lottery play slip!)

Herd of dinosaurs, headed to the office.

THE biggest problem about the above is that IF you hear this kind of discussion ongoing around you in your organization, it is a certain indication that you are working in the midst of a long-lost herd of organizational dinosaurs. And so you should run away. Because the thing is a dinosaur will eventually die off. Sure it runs around making lots of big dinosaur noise, but it’s only a matter of time. And the thing is that the dinosaur, lacking a brain capable of higher-order thinking will never recognize that it is in trouble. It will never know when it has suffered a fatal wound. Instead it will charge around as if everything is fine…until it just drops over.

If you can’t run away…say, for example, because it is your job…then recognize it as a cry for help. The organization clearly lacks a foundation in understanding outcome-based performance metrics, leading metrics, probably not heard of and isn’t using Balanced Scorecard, and so on. Which means that l-o-n-g before you ever sit at that meeting you needed to have been working on improving their understanding of the right kind of measures. Getting them past the point where they rely upon output metrics, lagging indicators, etc.

I’ve seen organizational KM implementation that began with an absolute insistence upon calculating the ROI of knowledge management. And I’ve instead seen KM implementation initiated based upon the organization’s recognition that sharing knowledge just made sense and that it supported the vision that the organization had – nobody questioned the ROI of sharing knowledge or improving collaboration. Guess which efforts produced the best results.

Dr. Dan's Daily Dose:
Don’t waste your time arguing with dinosaurs, work on changing the culture. And beware of shadows around you suddenly getting longer (which means the dinosaurs are about to fall to the ground).
About Dr. Dan Kirsch