Performance of Knowledge Management

Dr. Elijah EzenduFIMC, FCCM, FIIAN, FBDI, FAAFM, FSSM, MIMIS, MIAP, MITD, ACIArb, ACIPM,

PhD, DocM, MBA, CWM, CBDA, CMA, MPM, PME, CSOL, CCIP, CMC, CMgr

“Within the last years, nearly all major corporations started Knowledge Management (KM) initiatives, particularly to strengthen the knowledge base within the organization, especially to help employees share, activate and increase their knowledge to finally generate a more innovative, faster acting, competitive organization. Recognizing knowledge as the primary intangible resource to make companies more efficient and effective was the basis for the "knowledge-based economy" and for KM. Increasingly sophisticated customers, new technologies, eager new competitors, and the need for more innovative products forces companies to be able to manage their knowledge assets well. The introduction of a KM initiative is a large investment for many corporations. Therefore performance measurement systems are required to make the benefits and the performance of KM initiatives transparent. Especially in times of scarce budgets the usefulness of KM is in doubt, as the business impact of such initiatives often can be hardly quantified or is only indirectly measurable.” - Florian Resatscha and Ulrich Faisstb

“The ultimate test of any business is whether it leads to measurable improvements in organizational performance.” - Heeseok Lee and Byounggu Choi

Different Perspectives Regarding Knowledge Exchange Outcomes

Source: David A. Bray, Benn R. Konsynski, Improved Organizational Performance by Knowledge Management

From Knowledge Management Enablers to Organizational Performance

Source: Lee and Choi, Knowledge Management Enablers, Processes and Organizational Performance

Culture

•Collaboration•Trust•Learning

Structure

•Centralization•Formalization

People

•T-Shaped Skills

Information Technology

•IT Support

• Socialization• Externalization• Combination• Internalization

• Organizational Performance

• Organizational Creativity

Knowledge CreationProcess

Knowledge ManagementIntermediate Outcome

OrganizationalPerformance

Social Perspective

Technical Perspective

Hadanian, Borhani, Nekahi & Tolunia Perspective on Influencers of Knowledge Management

Transformation to Organizational Performance

Knowledge Management

Performance

Market Orientation

Innovation

Contributors to Knowledge Management Maturity

Factors Affecting Effectiveness of Knowledge Management Transformation to

Organizational Performance

Adapted from Rasula, Vuksic & Stemberger, The Impact of Knowledge Management on Organizational Performance

Dekings Four Quadrants of Knowledge Management Measurements

Instrument (Example)

•Balanced Scorecard•Intellectual Capital Audits•Knowledge Portfolio•Tobin’s Q•CIV

Business Impact ofKnowledge Assets

Quality of KnowledgeManagement Initiative

Location and Value ofKnowledge Assets

Business Impact of Knowledge Management

Instrument (Example)

•Questionnaires•Cross Organizational Benchmarking

Instrument (Example)

•Analysis of Knowledge Quality•Technology Broker

Instrument (Example)

•Success Stories•Cost Saving Analysis•Scoring Models

Knowledge

KnowledgeManagement

The generic methods for measuring organizational performance in knowledge management are as follows.•Financial Measures•Intellectual Capital•Tangible and Intangible Benefits•Balanced Scorecard

6P’s of KM Performance by Elijah Ezendu

KM Impacts in Organizational Philosophy, Processes, Practices, People, Products & Partners

Monitoring and Evaluation of KM Impacts must be managed as a Structured Change Programme

Performance Indicator

It’s a tool enabling the effectiveness of an operation or organisation to be measured, and allows an achieved result to be gauged or evaluated in relation to a set of objectives.

Source: OECD

Properties of Performance Indicators

i. Relevant to the purpose, policy and practice

ii. Clearly defined

iii. Reliable

iv. Worth measuring

v. Measurable

vi. Galvanize action

vii. Reflect results of action

viii. Precisely defined as possible

ix. Readily available within a reasonable time frame

Advantages of Performance Indicators

i. Means of measuring organizational progress toward set objectives.

ii. Give room for benchmarking and comparing various units, sections, departments and subsidiaries.

Disadvantages of Performance Indicators

i. Act as bad measures if not well defined

ii. Some vital indicators cant be easily measured

iii. Issuance of complexity due to number of indicators

Key Performance Indicators in a Firm

These are quantifiable factors that are clearly connected to drivers of business success in a particular firm.

Criteria for Selecting KPI

i. Strong linkage to objectives

ii. They should be connected to areas of the business that can be controlled

iii. They should be quantifiable

Types of KPI

1. Directional Indicators

2. Quantitative Indicators

3. Actionable Indicators

4. Practical Indicators

Developing Targets based on KPI

A Key Performance Indicator should drive managerial effort towards a mark of achievement, which is a target in accordance with set objective.

KPI…….Reduce waste

Target……50% by end of March

Expression of Performance Indicator

• In terms of ratio of actual to standard• In terms of number of occurrence• In terms of a complex mathematical

expression showing extent of occurrence• In terms of percentage of occurrence

North, Probst & Romhardt Performance Measurement Framework for KM Initiatives

Cost indicators

)Class II(

Knowledge Base Indicators (Class I)

Business Results

System qualityKnowledge Quality

)Documents(

Knowledge Specific

Service

Costs of Interventions

Interceding Processes

System Usage

User Satisfaction

Knowledge Transfer

Within the Organization

Intermediation and

Transfer Indicators

(Class III )

Effect Indicators on

Business Results

(Class IV )

Classes of IndicatorsClass of indicators Definition of term

Knowledge base indicators (Class I) Constituents of the organizational knowledge base in qualitative and quantitative terms

Cost indicators (Class II) Processes and inputs for changes in the organizational knowledge base (Costs)

Intermediation and transfer indicators

(Class III)

Measure direct usage of the knowledge base and the results of knowledge transfer resulting in intermediate effects on the organization.

Effect indicators on business results

(Class IV)

Evaluation of the effects on business results

Examples of System Quality Measures

Performance Issue Indicator Implementation of performance measurement

Quality of navigation structure

How fast can the user find the desired information?

Feedback buttons with ranking possibility on every portal page

Quality of search engine

Does the query result match what the user was searching for?

Average time of query to request, plus feedback buttons

Quality of expert search

Is the required expert found quickly?

Average time of query to request, plus feedback buttons

Examples of Knowledge Quality Measures

Performance Issue Indicator Implementation of performance measurement

Quality of the content

Quality of the provided documents within the repository

Feedback functionality attached to single documents. Higher rated documents are scaled up in the search lists. A repeated usage might also indicate a high-quality document.

Reliability, Up-todateness, Relevance, Accuracy of the content

Are the files and documents always up-to-date and do they fit the user's criteria?

Internal ranking, Feedback buttons, Trust buttons referring to author of document

Quality of experts Could the expert help? Feedback button referring to experts

Examples of Knowledge Specific Service Measures

Performance topic Indicator Implementation of performance measurement

Quality of knowledge distribution

Is the right knowledge at the right time at the right person?

Average time employees spent searching the information

Support of communities and collaboration

Do communities of practice share knowledge more efficiently?

Feedback surveys of participants

Cost Types of KM Initiatives

Cost types Items

Hardware Server, Network, Infrastructure

Software Portal Software, Network: One-time purchases or development costs

Implementation Consulting, customizing, training, and testing costs; communication costs

Support (Maintenance) Annual system administration, support, and maintenance costs

Examples of System Usage Measures

Cost types Items

Hardware Server, Network, Infrastructure

Software Portal Software, Network: One-time purchases or development costs

Implementation Consulting, customizing, training, and testing costs; communication costs

Support (Maintenance) Annual system administration, support, and maintenance costs

Examples of Knowledge Transfer as Intermediate and Transfer IndicatorPerformance topic Indicator

Knowledge

transfer from organization to employees

Period of vocational adjustment: The time to adjust a (new) employee to the given processes within the company decreases, because most of the necessary knowledge is available easier.

Knowledge

transfer from organization to projects

Reuse Rate: indicates the percentage of failed objects. This performance measure can be applied to a number of "re-inventing the wheel" cases: another measure is reuse opportunities ratio – the ratio between actual reuse content compared to opportunities.

Knowledge

transfer from R&D to production

Effectiveness of knowledge transfer from the Research & Development (R&D) department and the production area. A rating-based performance measure shows the closeness of working relationships between R&D and manufacturing using an internal self-assessment based on ratings.

Knowledge

transfer from production to

Response time to customer queries: The response time can be tracked electronically and is closely

correlated to the customer satisfaction.

Response quality of customer queries: Average customer rating (internal and external) of overall technical capability of the firm in providing technical service and new product

customer service innovations to bring value to the customers' future problems. Possible is an average rating by key external

or internal customers using a 1 to 5 interval rating scale to evaluate various dimensions regarding product

technology or process technology

External knowledge spillover

Response time to competitive moves: Time required for corporation to match the newest product of the competitor divided by the time required for competitor to match firm's newest product benefits. This indicates the ability of the corporation to maintain a leadership position or to match technology moves by the competition. The knowledge is generated by external experts, customers, supplier, competitors, and research institutions.

Examples of Indicators on Business Results Based on Balanced Score Card

Performance topic Indicators

Financials Shareholder Value, NPV, Profit, ROI, ROA, ROE, ...

Customer

Satisfaction

Number of refunds made, number of merchandising items returned, etc. Explanation: the customer satisfaction may increase because of faster response times and a better understanding of customer needs due to external knowledge links.

Internal Processes − Efficiency of internal processes: e.g. percentage of tasks/milestones

achieved within a certain timeframe measures the efficiency of a

group/unit.

− Quality of internal processes: the fraction of tasks finished correctly:

Potentials A possible measurement approach could include the KVA methodology. The process oriented view with learning time as basic metrics shows the performance of business units.

Balanced Scorecard Measures in KM

Financial

Objectives Indicators

How should we appear to our stakeholders?

Internal

Objectives Indicators

What must we excel at?

Customer

Objectives Indicators

How should we appear to our customers?

Vision & Strategy

Objectives Indicators

How should the organization look in the

future?

Learning & Growth

Objectives Indicators

To what extent are we able to change, improves

and innovate?

Linkage Between Causes and Strategic Activities

Knowledge Management

Business Process Improvement

Customer Relationship Management

Budget & CostManagement

Financial Results

Business Processes

Learning & Growth

Customer Satisfaction

Source: Balanced Scorecard Institute

Applicable Metrics at Various Stages of KM Maturity

KM M

atur

ity

Time

Pre-Planning PhaseUse scenarios & simulations to explore projected measure results & effects

Start-Up PhaseAnecdotes & qualitative metrics are most valuable to convince people of KM value

Pilot Project PhaseUse definitive metrics to show real value to business objectives

Enterprise Growth PhaseUse mixture of metrics to show value across organization

Cases Adapted from European Journal of Scientific Research

1. Hewlett PackardHP has a decentralized organization with little sharing of information across its units. The business culture supports sharing but few units have been willing to invest in efforts that do not have fast payback for the involved. There has previously been some informal knowledge transfer when employees have changed business units. In order to solve this problem knowledge management was implemented. The following are the performance indicators identified: •Active involvement. •Number of participating employees. •Number of postings/contributions. •Number of downloads. •Number of calls to support function. •Support ratings. •Unique log-ins.

2. KPMGThe purpose of the KM system is to take advantage of the experience within the organization, both in Sweden and globally. The overriding objectives are to maximize value creation and realization for the organization and for their clients, by making universally and instantly available best practices, experiences, insights and connections to the right people. •Adoption curve to see knowledge culture progression. •Generated business. •Individual contributions to the further development of the organization and its employees. •Statistics of awareness. •Number of contacts gained. •Attitude of knowledge sharing. •Efficiency & visibility on the market. •Employee satisfaction. •Re-use of information and/or experience.

International Oil Companies’ Adoption of KMCompany Adoption Of KM Origins Of KM

BP 1996Organizational learning/best practices transfer in upstream

Royal Dutch Shell 1995Organizational learning initiatives by corporate planning (e.g. scenario analysis, cognitive maps)

Chevron 1996Best practices transfers & cost reduction in Chevron’s downstream businesses

ExxonMobil 2003In Exxon: application of IT to E&P. In Mobil, best practice transfer in downstream

ConocoPhillips 1998 IT support for E&P

Schlumberger 1997 IT applications to drilling

Halliburton 1998 IT applications to drilling and seismic analysis

Marathon Oil 1999 IT applications to exploration

Murphy Oil 2000 IT applications to exploration

BHP-Billiton 2000KM uninitiated by IT dept. - but not adopted company-wide

Paragon Engineering Services Inc.

1999KM practices based upon groupware, intranet, project files, & other IT tools

Source: Robert Grant, The Development of Knowledge Management in Oil and Gas Industry

Motives for the Adoption of KMCompany Motives for Adopting KM

BP AmocoFollowing radical organizational decentralization, KM viewed as mechanism for achieving lateral coordination

Royal Dutch/Shell

In Shell’s highly-decentralized multinational structure, KM was a natural complement to strategic planning and career management as an integrating mechanism. With poor profitability during early 1990s, Shell came under strong pressure to make more effective use of its dispersed talent

ChevronTexacoChevron’s adoption of KM driven by pressured for cost reduction during early 1990s. Resulted in strong interest in transfer of best practices

ExxonMobil

Mobil enthusiastic adoption of KM during the mid-1990s was driven primarily by its desire to improve efficiency in E&P and in refining through improved identification and transfer of best practices

ConocoPhillips

Expansion of exploration, especially in deep-water Gulf of Mexico, created need for data management systems to support huge amounts of data being generated and processed and link them to decision processes

Schlumberger Impetus for KM came from need to link rapidly advancing data management with systems that linked human expertise in globally distributed operations

Halliburton

Marathon OilDesire to improve upstream performance through more effective linking of people to people and people to information

Source: Robert Grant, The Development of Knowledge Management in Oil and Gas Industry

Activity

The management of a multinational company with operations in 40 countries spread across 5 continents embarked on Knowledge Management Initiative focused on overcoming geographical barrier in knowledge sharing by using alternative means of communication. List the performance indicators that can suffice in this programme.

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Dr Elijah Ezendu is Award-Winning Business Expert & Certified Management Consultant with expertise in Interim Management, Strategy, Competitive Intelligence, Transformation, Restructuring, Turnaround Management, Business Development, Marketing, Project & Cost Management, Leadership, HR, CSR, e-Business & Software Architecture. He had functioned as Founder, Initiative for Sustainable Business Equity; Chairman of Board, Charisma Broadcast Film Academy; Group Chief Operating Officer, Idova Group; CEO, Rubiini (UAE); Special Advisor, RTEAN; Director, MMNA Investments; Chair, Int’l Board of GCC Business Council (UAE); Senior Partner, Shevach Consulting; Chairman (Certification & Training), Coordinator (Board of Fellows), Lead Assessor & Governing Council Member, Institute of Management Consultants, Nigeria; Lead Resource, Centre for Competitive Intelligence Development; Lead Consultant/ Partner, JK Michaels; Turnaround Project Director, Consolidated Business Holdings Limited; Technical Director, Gestalt; Chief Operating Officer, Rohan Group; Executive Director (Various Roles), Fortuna, Gambia & Malta; Chief Advisor/ Partner, D & E; Vice Chairman of Board, Refined Shipping; Director of Programmes & Governing Council Member, Institute of Business Development, Nigeria; Member of TDD Committee, International Association of Software Architects, USA; Member of Strategic Planning and Implementation Committee, Chartered Institute of Personnel Management of Nigeria; Country Manager (Nigeria) & Adjunct Faculty (MBA Programme), Regent Business School, South Africa; Adjunct Faculty (MBA Programme), Ladoke Akintola University of Technology; Editor-in-Chief, Cost Management Journal; Council Member, Institute of Internal Auditors of Nigeria; Member, Board of Directors (Several Organizations). He holds Doctoral Degree in Management, Master of Business Administration and Fellow of Professional Institutes in North America, UK & Nigeria. He is Innovator of Corporate Investment Structure Based on Financials and Intangibles, for valuation highlighting intangible contributions of host communities and ecological environment: A model celebrated globally as remedy for unmitigated depreciation of ecological capital and developmental deprivation of host communities. He had served as Examiner to Professional Institutes and Universities. He had been a member of Guild of Soundtrack Producers of Nigeria. He's an author and extensively featured speaker.

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