Creating a Value Proposition With Knowledge Management

1. Creating a Value Proposition With Knowledge Management Points for discussion Patrick Callioni Canberra 2 April 2002

2. Purpose of presentation • To discuss the significance of knowledge management to the future of Australia • To discuss measurement issues with knowledge management • To discuss how to create a value proposition for knowledge management

3. The context • “The Newtonian God - ‘the God who made a clockwork universe, wound it, and withdrew’ - is dead.” Richard Hames Burying the 20th Century (1997). • “When a human society reaches the limits of its stability, it becomes supersensitive and is highly responsive to the smallest fluctuation. Then the system responds even to subtle changes in values, beliefs, worldviews and aspirations.”Ervin Laszlo Macroshift (2001)

4. The National Office for the Information Economy • We must position the Australian economy as a knowledge and service economy of the twenty-first century • Our international competitiveness is high and we rank highly in international benchmarking studies that measure countries against criteria related to information economy capacity • Our focus in tools that can help us do this, which are largely information management tools

5. Measurement: Why it is important • “Each day, their organisations’ operations consume public resources. Each day these operations produce real consequences for society – intended or not. If the managers cannot account for the value of these efforts with both a story and demonstrated accomplishments, then the legitimacy of their enterprise is undermined and, with that, their capacity to lead.” • MHMoore, Creating public value, Harvard University Press 1995, p. 57.

6. Measuring knowledge and information • Information is an inert substance, with no inherent power of action, motion, or resistance; one must add something to make it useful and that something is belief (in the form of expectations), derived from experience (or knowledge = information + belief) • To create value in the information economy…we need knowledge and the capacity to manage that knowledge…to manage information and belief systems • Google shows over 3.2 million references for knowledge management, more than for “risk management” (under 3 million)

7. Creating a value proposition with KM • There are three sets of issues • First, measuring the cost of KM (and the cost of adding or subtracting to KM) • Second, measuring the value of KM to tangibles such as profit and loss statements • Third, measuring the value of KM to intangibles, such as service, satisfaction, perceptions, expectations, emotions, response time, quality, cycle-time, innovation and so on

8. Creation of value • Value is a word that requires context to be understood • In most cases, the point of reference will be that of a shareholder or of a stakeholder • ….but most of us occupy more that one vantage point and value to a shareholder may be ruination to an environmentalist…who may be the same person • Understanding beliefs and belief states is crucial

9. A value creation model

10. Value creation model is fractal….. • The model can be used at the organisational level or… • ...at any level below or above… • such as, for example, a division, team or individual… • ...or a community, industry, region or state… • ...and beyond.

11. Creating a value proposition with KM (cont.) • The value proposition is the business case for action (and investment) • It is the logical link between action and return: If we do A, then B will happen, and the return on B will be higher than either the cost of A or the potential risk of not making B happen • We need to know who is measuring value to knowwhat to measure and how

12. Using the model • Whose point of view is important here? • When you can answer that question, you can use the model to understand what that “actor” values and.....why… • ...and then... • …how it might best be measured...

13. Where to from here? • The major issues are issues of measurement • and, in particular, the management of intangibles

14. The importance of intangibles • Tangibles explain less than 20% of the value of most publicly listed firms. Time Warner has only 6.49% of its value attributable to tangibles…for every $1 of true value, only $0.065 cents is being measured and managed by conventional management practices. For Oracle Corporation, tangibles account for only 4% of its value. For General Electric (worth over US$450 billion), tangibles account for less than 11% of its value (Standards Institute)

15. patrick.callioni@noie.gov.auwww.noie.gov.au