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I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 1 © Copyright. David J. Skyrme, 1999. Knowledge Management - Performance From Measurement Myopia.

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Presentation on theme: "I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 1 © Copyright. David J. Skyrme, 1999. Knowledge Management - Performance From Measurement Myopia."— Presentation transcript:

1 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 1 © Copyright. David J. Skyrme, Knowledge Management - Performance From Measurement Myopia to Knowledge Leadership Dr David J. Skyrme

2 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 2 © Copyright. David J. Skyrme, Knowledge Management - Performance Topics r Knowledge Management - 2 thrusts; 7 levers r The Pressure to Measure r Innovations in Measurement - ABBA r Intellectual Capital Measurement Systems r Meaningful Measures; Illuminating Indicators r Best Practice Guidelines r Beyond Measures to Knowledge Leadership

3 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 3 © Copyright. David J. Skyrme, Knowledge Management - Performance Why Knowledge Management? Goods & Services Knowledge Information Innovation in Products, Services and Processes Market driven “Information Society” Added Value Time-to-market Global Customers Changing Needs Time-to-market ‘Smart’ Products Customization Service Quality Intangibles Responsiveness Flexibility

4 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 4 © Copyright. David J. Skyrme, Knowledge Management - Performance Working Definition Knowledge Management is the explicit and systematic management of vital knowledge - and its associated processes of creation, organization, diffusion, use and exploitation.

5 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 5 © Copyright. David J. Skyrme, Knowledge Management - Performance 2 Key Thrusts Sharing existing knowledge “Knowing what you know” Knowledge Innovation “Creating and Converting” SM Knowledge Innovation is a service mark of ENTOVATION International

6 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 6 © Copyright. David J. Skyrme, Knowledge Management - Performance Seven Levers r Customer Knowledge - the most vital knowledge r Knowledge in Products - ‘smarts’ add value r Knowledge in People - but people ‘walk’ r Knowledge (in) Processes - know-how where needed r Organizational Memory - do we know what we know? r Knowledge in Relationships - richness and depth r Knowledge Assets - intellectual capital

7 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 7 © Copyright. David J. Skyrme, Knowledge Management - Performance The Pressure to Measure “Financial reports are next to meaningless. They are out of date, inadequate and don’t provide you with the information that you want.” Manager interviewee - Burns et. al, CIMA Research The Fiction in Accounts

8 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 8 © Copyright. David J. Skyrme, Knowledge Management - Performance Is Microsoft Worth 5 Multinationals? $185 billion will buy Microsoft or five large companies combined: Boeing, McDonalds, Texaco, Time-Warner and Anheuser Busch. “Either the former is overpriced or the latter underpriced?” Charles Kaufman, Letters, Business Week (28 July 1997).

9 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 9 © Copyright. David J. Skyrme, Knowledge Management - Performance Widening Gap Indicative Market/Book Value Ratio

10 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 10 © Copyright. David J. Skyrme, Knowledge Management - Performance A Typical Example Glaxo Wellcome Assets £bn Physical Goodwill Market Value Drugs in development Patents Intellectual property etc.

11 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 11 © Copyright. David J. Skyrme, Knowledge Management - Performance The Theory “What you can measure you can manage”

12 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 12 © Copyright. David J. Skyrme, Knowledge Management - Performance The Practice “Some of the most useful information is not the most reliable. Some of the most reliable information is not the most useful.” (Steve Wallman, former SEC Commissioner)

13 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 13 © Copyright. David J. Skyrme, Knowledge Management - Performance Perceived Performance Creating new knowledge Accessing external Using in decisions Embedding knowledge Knowledge in databases Transferring existing Culture and incentives Valuing knowledge + impact Worse Better than average Source: BI/E&Y Survey

14 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 14 © Copyright. David J. Skyrme, Knowledge Management - Performance Four Motivations (ABBA) r Asset Focus –valuation for M&As, buy-outs, restructuring etc. r Baseline Focus –benchmarking KM practice r Benefits Focus –results and outcomes orientation, cause/effect r Action Focus –performance measurement, management drivers “Money, money, money” - Abba Hit Song!

15 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 15 © Copyright. David J. Skyrme, Knowledge Management - Performance Asset Focus r Value based systems –EVA TM, MVA etc. –Cash Flow (e.g. CFROI) r Financials adjusted for investment etc. r Used by analysts r Tools for managers - Coca Cola, Monsanto.. r Induces ‘elevator mentality’ (Bradley)? r Value “in the eyes of the beholder” (Evers)

16 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 16 © Copyright. David J. Skyrme, Knowledge Management - Performance Internet Stock Valuation r P-E ratios: 35 (S&P500) - Yahoo! eBAY 700 r Priceline.com > Delta + United + US Airways r AOL = 1.4 x Times-Warner r Amazon.com Barnes & Noble Revenues $ 600m $ 3,000m Valuation $11,000m $ 2,500m N.B. All figures subject to wild fluctuations! … Value is complex and volatile

17 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 17 © Copyright. David J. Skyrme, Knowledge Management - Performance Baseline Focus r Benchmarking KM practice r Comparisons with ‘best practice’, world-class r Knowledge inventory (information audit) r Assessment Tools e.g. KMAT TM : –Leadership: KM is integral part of strategy –Technology: Organization memory, knowledge flows –Culture: sharing, openness, trust, innovation, learning –Measurement/process: linked to business + benefits

18 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 18 © Copyright. David J. Skyrme, Knowledge Management - Performance KM Assessment

19 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 19 © Copyright. David J. Skyrme, Knowledge Management - Performance Benefits Focus Access to best / latest thinking Better/faster innovation Faster Problem-Solving New Hires Effective Quicker Better sharing Knowing who’s doing what Novel approaches New ideas Faster access to knowledge Productivity Performance Minimizes Duplication/ Re-invention Knowledge Benefits Intermediate Benefits Organizational Benefits Improved Customer Service Reducing Knowledge Loss

20 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 20 © Copyright. David J. Skyrme, Knowledge Management - Performance Balanced Scorecards EXTERNAL/ CUSTOMERS INTERNAL/ PROCESSES INNOVATION/ LEARNING FINANCIAL r Adds non-financials r Focuses on drivers r Adds future orientation r Alignment r Helps communication r Management tool A step in the right direction but.....

21 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 21 © Copyright. David J. Skyrme, Knowledge Management - Performance Scorecards and IC Focus r No a priori focus on know-how and intellectual capital r Typically used to drive annual performance not long-term sustainable value r Interdependencies not clear r Lacks knowledge-based industry theoretical framework (Sveiby)

22 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 22 © Copyright. David J. Skyrme, Knowledge Management - Performance IC vs. Traditional Measures Traditional IC Tangible Intangible Events Process Past only + Future Cost Value Cash Non-financial Periodic Ongoing Statutory Management

23 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 23 © Copyright. David J. Skyrme, Knowledge Management - Performance Intellectual Capital Model Customer Capital Structural Capital Human Capital IC After: Armstrong, Edvinsson, Petrash, Saint-Onge, Sullivan.

24 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 24 © Copyright. David J. Skyrme, Knowledge Management - Performance The Skandia Navigator FINANCIAL FOCUS CUSTOMER FOCUS PROCESS FOCUS HUMAN FOCUS RENEWAL/DEVELOPMENT FOCUS OPERATING ENVIRONMENT Source: SKANDIA AFS r Adds visualization: – imagery of house r Used with value creation (IC) model r Navigation metaphor r Reporting and management r Renewal and growth r Real-time PC system (Dolphin)

25 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 25 © Copyright. David J. Skyrme, Knowledge Management - Performance Inclusive Valuation Methodology* r Hierarchies of value r Value ratings 0-1 r Combinatorial arithmetic r Computer modeling r 3-d value surfaces r Sensitivity analysis r The ‘Leeson’ factor Operational Indicators Financial Metrics Value Functions Combinatorial Value *IVM - M’Pherson Consultancy TM

26 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 26 © Copyright. David J. Skyrme, Knowledge Management - Performance The IC Index r Strict hierarchy (‘distinction tree’) r Applies weightings r Single resultant measure (the IC Index) r Indicators of flows r Relative changes (vs. absolute) Intellectual Capital Organizational Capital Renewal and Development Capital Human Capital Customer Capital Business Processes Capital TM Source: Goran Roos, Intellectual Capital Services Limited..

27 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 27 © Copyright. David J. Skyrme, Knowledge Management - Performance Intangible Assets Monitor (Sveiby) r Competency drives r Three sub-categories r Interesting ratios e.g. –‘Rookie ratio’ –‘Competence stretch customers’ r Restrict to one page r Guides action Competencies External Internal Structure Structure G r o w t h / R e n e w a l E f f i c i e n c y S t a b i l i t y

28 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 28 © Copyright. David J. Skyrme, Knowledge Management - Performance IC Measures Summary r Focus on factors for sustainable value growth –benefits already proven cf. Dow, Skandia r Many common elements - IC categories, hierarchies, interdependencies r New ones focus on flows and direction r Many challenges: –not in finance officers ‘lexicon’ or standards –time lags: cause and effect –change in management thinking and orthodoxy

29 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 29 © Copyright. David J. Skyrme, Knowledge Management - Performance Illuminating Indicators (1) r Use meaningful metrics by sub-category: –lead/lag; output/outcome; stability/growth; upstream/downstream r Different types: –absolute, ratios, percentages, finance, nominal, changes r Customer measures –satisfaction: but of what? –relationships: length / depth –learning: competency stretching

30 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 30 © Copyright. David J. Skyrme, Knowledge Management - Performance Illuminating Indicators (2) r Human capital –skills/experience; qualifications... and growth –demographic profile; turnover r Organizational/structural –investment in IT (even better is results of IT!!) –process quality; degree of systematization r Intellectual property –brands, trademarks, patents etc. (value, revenues)

31 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 31 © Copyright. David J. Skyrme, Knowledge Management - Performance Best Practice Guidelines r Clear categories (top-down), relevant indicators (bottom-up) r Enough, but not too many (2-4 per category) r Customized, but with some comparability r Approximately right vs. precisely wrong r Forwards not backwards (predictive) r Appropriate processes/management systems r Alignment - from strategy to personal plans

32 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 32 © Copyright. David J. Skyrme, Knowledge Management - Performance The Bottom Line r “Benefits are difficult to measure” r “We have to do it” r “User enthusiasm may be the most significant measure” r “Fact based sagas” r “Anecdotal stories” r “There was no quantified financial justification”

33 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 33 © Copyright. David J. Skyrme, Knowledge Management - Performance Measurement Myopia? “There are those that measure..... and those that act” Remember? “What you can measure you can manage” At this stage of our understanding, knowledge leadership seems more important than detailed measurement or prior justification

34 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 34 © Copyright. David J. Skyrme, Knowledge Management - Performance Knowledge Leadership r Clear vision and value proposition e.g. –share best practice - faster innovation –reusable knowledge - developing competency –intellectual assets - know-how businesses r Frameworks for action - simple models r Find champions in the business r Facilitate networking - tap into expertise r Excellent communicators - internal/external

35 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 35 © Copyright. David J. Skyrme, Knowledge Management - Performance Point to Ponder “The only valuable knowledge is that which equips us for action and that kind of knowledge is learned the hard way - by doing” (Karl Erik Sveiby)

36 I N T E L L I G E N C E I N S I G H T I N N O V A T I O N 36 © Copyright. David J. Skyrme, Knowledge Management - Performance Contact Details David J. Skyrme David Skyrme Associates Limited (A Business Partner of ENTOVATION International) Highclere, NEWBURY England RG20 9PR Tel: Knowledge Connections - Knowledge Innovation - SM Send an to request your free subscription to I 3 UPDATE


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