Curiouser and Curiouser! on roi http://matt.blogs.it/ RSS feed for topic roi Copyright 2006 Matt Mower Squib/0.1 self@mattmower.com self@mattmower.com en-gb Hiring a KM system, the old fashioned way Thu, 02 Jan 2003 15:33:34 +0000 <P>I read a lot about calculating ROI for Knowledge Management.&nbsp; I also hear a fair amount about problems with doing so.&nbsp; I think this is because:</P> <UL> <LI>the value of knowledge&nbsp;is, in general,&nbsp;not well understood, e.g. how much is a new product worth? (it's particularly difficult when considering the risks involved with developing new knowledge and the opportunity cost in exploiting it) <LI>the relative value of different <EM>chunks</EM> of knowledge can be hard to estimate <LI>it's often hard to know what impact a KM system has had in capturing or&nbsp;leveraging knowledge, particularly before the fact <LI>knowledge is so tightly interwoven into the fabric of what we do that it can be hard to make sensible comparisons</LI></UL> <P>In many ways I am inclined to think of ROI as a red-herring.&nbsp; Here's my theory:</P> <P>At some point, somewhere, some accountant said: "Hey! We're spending all this money on IT equipment, but what does it ever do for us?"&nbsp;Then some clever person with a background in selling plant equipment or something said "let's use a funky calculation to make it seem like it saves lots of money."&nbsp; And they did, and, fortunately, nobody ever went back to check the figures.&nbsp; This quickly became the industry norm because the purchasing process was now so much easier "Look, the ROI numbers are great!"&nbsp; Then came the great budget squeeze, the sky fell and everyone is wondering how to justify spending.&nbsp; Suddenly we're stuck with ROI and we don't really know what it means.</P> <P>I'm not saying that ROI is specifically bad, just that it may not be applicable in all cases and that coming up with some arbitrary way of calculating things to satisfy the bean counters seems a poor justification for using, or not using, a knowledge management approach.</P> <P>But is there another way?</P> <P>I think so.</P> <P>I believe that knowledge is a fundamental aspect of our work.&nbsp; If it wasn't then why would you bother with interviewing to fill new positions? With job specs?&nbsp; With resumes?&nbsp; If knowledge wasn't important then the first&nbsp;joe off the streets could fill any position (the goal of any turnkey business).</P> <P>So when you hire a new member of staff you are really buying <FONT color=maroon>packaged knowledge </FONT><EM>off the shelf</EM>.&nbsp; Recruitment agents are really nothing more than knowledge shops! (And like all shops the service and quality of the product may vary).</P> <P>But when you hire new staff members do you ask "What's the ROI on this position?"&nbsp; Well I guess you might, but I think it is more usual to work a different way around:</P> <BLOCKQUOTE dir=ltr style="MARGIN-RIGHT: 0px"> <P>"We need to do X.&nbsp; Hmm... we don't have anyone available.&nbsp; Okay let's hire someone.&nbsp; What's the market value of those skills?&nbsp; We can't afford that!! Oh, alright then..."</P></BLOCKQUOTE> <P>and so on.&nbsp; A job description gets posted, resumes are sorted, interviews are held, someone is appointed.&nbsp; Usually on a 3 or 6 month probation period.&nbsp; At that point you decide whether to keep them (the need is being fulfilled) or let them go (their not right for the job, or the situation has changed).</P> <P>The key point for me is that the determination is not <FONT color=maroon>what is the ROI on this person</FONT> but <FONT color=maroon>does the need get fulfilled at a price we can justify</FONT>.&nbsp; It's more about needs & their fulfillment than it is about costs & investment.</P> <P>And so, I think, it should be for knowledge management.&nbsp; I believe companies would be more successful if they took the approach that buying a KM package was more like hiring a new employee or two&nbsp;(the capital costs are likely not dissimilar for SME's).</P> <P>Start with an understanding of <FONT color=red>what the needs are that must be fulfilled</FONT>.&nbsp; Ask how much it's worth to you to fulfill those needs.&nbsp; Get the software on probation.&nbsp; Run with it.&nbsp; Then buy it, or go back to the market.</P> <P>I think you will find that, by the time you have a firm understanding of what your knowledge needs are, you will more than understand where the ROI comes from (even if your calculator displays it as "a suffusion of yellow!")</P> <P>Comments?</P> http://matt.blogs.it/entries/00001027.html