Meaningful Measures

Many KM initiatives fail to reap their promised benefits through lack of poor measurement systems. Most large organizations have a horde of accountants and financial analysts, yet few if any knowledge accountants and knowledge value analysts. As is often said "if you are not scoring you are only playing around".

Measuring knowledge is not easy. If it was it would not be the stumbling block to KM that it is. We have already covered some aspects of measurement in the evaluation stage of this roadmap. On this page we cover reasons to take knowledge measurement more seriously and some of the practical things you can do about it.

Why Measure?

One of the most cited reasons is that the financial capital of a company (as reflected in tangible assets on its balance sheet) does not reflect the true value of the company (as indicated by its share price and market capitalization). For knowledge intensive companies the market value can 5-10x its financial capital. The difference is due to intangibles, including knowledge, so getting a better handle on this could help organizations maximize their shareholder value.But there are other reasons as well:

• Conventional balance sheets are backward-looking and do not reflect the future potential of a company
• Intangible factors, such as employee know-how, have proven to be good lead indicators of the future financial health of a company
• It supports a corporate goal of enhancing shareholder value
• The process of measurement gives management insights into the drivers of sustainable performance and the contribution of knowledge
• "What gets measured, gets managed" - it therefore focuses on protecting and growing those assets that reflect value.

Types of Knowledge Capital

When we say we need to measure knowledge and intellectual capital, it is important to realise that there are several types of intellectual capital. Elsewhere on this website we show a commonly used model of intellectual capital. In our analysis of measurement methods we have found over 30, which can be grouped according to the type of intellectual capital involved.

As seen from the diagram, some are wide ranging in scope while others deal in more depth with a specific type, such as human capital or intellectual property. It is appropriate to mix and match, according to the specific part of the organization which is to be measured. However, there should be some standard baseline measures from the IC category, shown at the top of the bottom box. Note that some of those concerning the KM programme (top set of boxes) have been discussed in the roadmap section on evaluation.

Some Practical Guidelines

Here are some guidelines to bear in mind as you embark on a knowledge measurement programme:

• Start rethinking your organization and your strategy as being knowledge-based - how does knowledge contribute value? Which is your vital knowledge? If you're not sure, conduct a knowledge audit.
• Develop a set of knowledge goals directly from your corporate strategy. If this is difficult are there problems with the articulation of the corporate strategy? Focus on the knowledge areas that drive future earnings potential.
• As you embark on a measurement pilot, start with a few simple well-understood categories. Don't use the language of 'intellectual capital', but rather terminology that is rooted in the culture of your organization.
• From the categories develop a generic and balanced set of indicators. Good indicators are simple and understandable, credible, relevant, measurable, objective and controllable.
• Engage widely with employees and stakeholders. Treat any new measurement system as a management change programme using the full gamut of communications activities. But make sure it is a two-way dialogue.
• Treat the whole process as a learning exercise adapting as necessary from year to year.

You'll find more guidelines and some pitfalls to avoid in our K-Guide Measuring the Value of Knowledge.

Further Reading

• Measuring the Value of Knowledge - our 20-page K-Guide giving more details of the approaches (to be available shortly onlkine through our K-Shop)
• Measuring Knowledge and Intellectual Capital, David Skyrme, Business Intelligence (2003). ISBN 1 903920-17-5. An in depth 500-page report detailing the methods and practices.
• Making Sense of Intellectual Capital, Daniel Andriessen, Elsevier Butterworth-Heinemann (2004). Perhaps the most comprehensive overview of the subject in a book format.

Last updated: 19th March 2011