Tuesday, September 25, 2007

ROI: the Sad Case for KM

More and more frequently I hear calls for proof of the "ROI" (Return on Investment) of knowledge management. I hear it within my own company; I hear it from KM practitioners in other companies; I even hear KM consultants espousing the importance and benefits of calculating ROI to demonstrate knowledge management's contribution to the business bottom line.

This concerns me. Not because I don't believe KM has value -- it obviously does! -- but because ROI is a specific type of business measurement that overemphasizes the direct-to-bottom-line component of KM while completely ignoring (and discrediting) the rest.

KM certainly contributes indirectly to the bottom line, as it contributes to many other aspects of the company's fiscal and intellectual diversity and health. But that is not its primary goal. This call for ROI is part of a larger tendency within corporations today to "align" KM with business operations. By that I mean making KM a tool used by business management to ensure the optimal and efficient exercise of business processes.

Now, I have no objections to KM supporting business processes. Clearly, that is the primary use of knowledge and the company wants to encourage anything that contributes to the bottom line. But that is not all that KM is about. KM also significantly contributes to the breadth of knowledge, experience, and expertise of its employees. It contributes to the resilience and responsiveness of the company to changes in the business environment by strengthening its core intellectual capabilities. It impacts business processes both direct and indirect. And it establishes a culture and channels for distributing business intelligence at lightning speed.

The problem is the measuring. Managers don't measure things for intellectual stimulation. They measure them so they can make changes and confirm the results. Managers also tend to think high-level. If ROI is what you are measuring, then that is the goal (not a goal, the goal). That is not a slam against managers, it is just an attribute of their job: to think clearly and succinctly and not get bogged down in details.

The results, if you are not careful, can be both dramatic and unfortunate. The analogy that comes to mind is college. If you see the goal of college being to get a job (your ROI), then there really is no need for English, history, languages, or even science -- depending upon your target profession. However, if you see the goal of college as expanding your knowledge and broadening your character, not only will it have a strong indirect impact on your employability, but your opportunities will be far more flexible and adaptive to the business environment when you graduate. Business opportunities fluctuate on a cyclic basis. At one point, there was a strong need for engineers. But if you went to school specifically for that career, the market was pretty much saturated 4-5 years later when you graduated. Ditto MBAs and other focused degrees. I pity the poor Cobol programmer trying to break into the web era. Or Algol, PL/1, Pascal...

So just as the goal of college is to teach capabilities, not specific skills; the goal of KM is to facilitate knowledge development and transfer, not solely to apply knowledge to the product pipeline.

Another problem with ROI and similar types of business measurement is that it starts to infiltrate your thinking. In a recent discussion among KM professionals concerning assessing the value and success of communities of practice, several members of the list argued that you had to use the business objectives for the CoP to measure against those goals and calculate success. (In other words, did the company get what it wanted out of the community.) Again, companies don't sponsor Communities for altruistic reasons, but people participate in those communities for personal and professional reasons and it is the participants who ultimately determine whether the community succeeds or fails. I've seen a number of cases where companies tout the success of their CoP programs while at the same time complaining how hard it is to get members involved. Say what!?!

The success or "return" of a KM program is the cumulative benefits -- both short and long-term on the company and its employees. This is a very hard concept for line-of-business managers to grasp. They understand it when they feel its absence -- the recent rebirth of KM within American companies runs a parallel course to the enthusiasm for the business fads of downsizing, rightsizing, and outsourcing in the late 80's and 90's. Many companies followed the trend only to find that the intelligence of the corporation had left with its employees. The need for knowledge management became apparent.

But there hasn't been major corporate gaffe such as downsizing for several years and management tends to have a short-term memory. The current business fad has shifted from business process re-engineering to supply chain optimization and process refinement -- squeezing the last penny out of the business pipeline. And KM is beginning to feel this squeeze. It is hard to tell what the outcome will be.

But for the time being I believe it is the responsibility of KM professionals to avoid the rush to ROI and make sure both the direct and indirect "returns" of KM are recognized and re-established as objectives.


Eric said...

Hi Andrew,

I'm a researcher with Babson University in Wellesley, MA. I'm interested in talking with you about knowledge management. If you have the time please contact me at eburns1@babson.edu.


Eric Burns

Stephen Collins said...
This comment has been removed by the author.
Stephen Collins said...

Oops. Typo. Should have said.

One of the best ever explanations for the soft value of well done KM (and by my own extrapolation, social tool use in business - both inside and across the wall).

Really, really good.