Crm Module 4

Knowledge Management & Valuation of Knowledge Assets

Agenda 1. What Is Knowledge Management ? 2. Building Blocks For Knowledge Management Solutions. 3. What Is Intellectual Capital? 4. Models For Valuation of Intellectual Assets.

Sustainable Competitive Advantage a firm has comes from what it “collectively knows”, how efficiently it uses what it knows and how readily it “acquires and uses new knowledge”. Knowledge management provides an enabling framework to derive this advantage.

What Is Knowledge?

(Formal, codified, data bases, policy manuals, white papers etc.)

(Experience,

past memories, hard to catalogue, document)

Tacit Knowledge = Information+ Experience, Explicit Skills & Attitude Embedded Knowledge is the human interpretation of data / information for potential action

Essentially knowledge is people based

What Is Knowledge Management ? Increasing the capacity for effective action by connecting people to people and people to information

Knowledge Management is focussed heavily on Leveraging “collective knowledge”

What Does Leveraging “Collective Knowledge” Involve?

• Working in collaborative teams to deliver business excellence • Developing and sharing “best practices”

• Faster replication of innovations through faster movement of knowledge through the organization • Acquisition and sharing of “new knowledge” • Managing organizational learning. Building and sustaining core competencies and capabilities

Ford Motor Company (Best Practice Replication) The Challenge: • Reduce costs - mandated cost reductions by cutting budgets (5% / year, adjusted for production). • Different departments were discovering ways to reduce costs - RAPID (Rapid Action for Process Improvement Deployment). (Duplicating efforts!) • Foster sustainable cost reductions through sharing of cost-cutting best practices.

Ford Motor Company (Best Practice Replication) KM Solution: • Mandated that department managers document their cost-reducing best practices: • Can include words, sound bites, and images • Must include manager's contact information • Includes contact info for associated suppliers (for any needed special tools/materials)

Ford Motor Company (Best Practice Replication) Created "Best Practice Replication" system: • People enter documented best practices on a website on Ford's Intranet. • A business specialist reviews the practice for suitability and application. • The practice is routed to other departments that might benefit.

Ford Motor Company (Best Practice Replication) • Recipients are asked about their intention to implement and any expected savings • Has used some incentives (besides the mandate to reduce cost): – offers "good Samaritan" awards to valued contributors – offers "copycat" awards to successful reusers of best practices

Ford Motor Company (Best Practice Replication) Results: • The Best Practice Replication system has had incredible ROI: – Cost 10 days of an intranet developer's time and is run by 2 business specialists – Is credited with saving $547 million over 3 years - 1996 to ‘98. • Replication process patented and licensed to Shell

Lessons From Leading Edge Practitioners • People are key to knowledge management. Leading firms have discovered that technology solutions do not succeed by themselves, but • Knowledge must be managed by people who own it, need it, create it and use it. • Otherwise,fancy databases get populated with information that is never used Daimler Chrysler Lotus Notes databases were a failure until “Tech Clubs” took up the ownership of technical knowledge

Building Blocks For Holistic Knowledge Management Solutions

•Corporate Portal •Individual •Knowledge Mapping Intranets •Knowledge Structuring 25% •Internet access 25% •Knowledge Mapping •Audio / video Technology conferencing Workshops Knowledge Enablers •Infrastructure / •Debriefing Communication processes Workshops backbone •Business Process •Content Modelling management Organisational / tools & Search cultural engines

Enablers •Culture change initiatives

50%

•Communities of Practice across organisation. •Rewards and recognition

Key Knowledge Management Processes •Linking people to information / knowledge repositories / best practices (Knowledge centre / Knowledge Portal) Here the focus is on explicating as much of the tacit knowledge as possible and storing in knowledge repositories for ease of sharing. (Knowledge mapping and structuring)

Knowledge Center (Knowledge Portal) Teams to develop content Online courses development Key projects documented List of Experts in company and external

Knowledge Centers Knowledgedomain.com

Storehouse of functional knowledge ❙ Distilled learnings in specialty areas ❙ Focussed functional training ❙

-Repository

of domain / functional knowledge -Dissemination of best practices -Upgradation of functional skills -Place to search -Place to post a query

Key Knowledge Management Processes •Linking people to people in “cross functional teams” / “communities of practice” to share knowledge. Here the focus is on identifying discreet knowledge domains that make up the firm’s core competencies & sponsoring teams ( communities/ networks) to steward these knowledge domains.

Knowledge Sharing Culture • The most important enabler for leveraging collective knowledge is the Organizational Culture A Culture of Trust is the Essential Prerequisite for Proactive Knowledge Sharing

Knowledge Management In Skandia Talent Management • The focus of talent management, or optimizing and developing employees’ skills, is to ensure that Skandia retains the competencies required within its business. • Skandia has developed a web-based solution that maps the employees’ skills, competencies, career aspirations and personal development needs. These are then matched against the group’s own needs.

Knowledge Management In Skandia Knowledge Management • Through effective knowledge management Skandia is able to convert individual local competencies into shared group know-how, enabling the organization to create solutions that deliver sustainable growth and contribute to business development and career opportunities for its employees.

Knowledge Management In Skandia Knowledge Management • The focus is on using the “Power of the Skandia Group”. Developing methods for tapping into and sharing the tacit knowledge of the employees. • Networking has always been a fundamental principle at Skandia. A new position, Networking Officers, has been introduced to promote knowledge sharing within the entire organization.

Knowledge audit • • 1. 2. 3. 4. 5. 6.

is a systematic examination and evaluation of organizational knowledge health, which examines organization’s knowledge needs, existing knowledge assets/resources, knowledge flows, future knowledge needs, knowledge gap analysis the behavior of people in sharing and creating knowledge.

Objectives of Knowledge Audit: • • • • • • •

•

K-audit helps an organization to clearly identify what knowledge is needed to support overall organizational goals and individual and team activities. gives tangible evidence of the extent to which knowledge is being effectively managed and indicates where improvements are needed. explains how knowledge moves around in, and is used by, that organization. provides a map of what knowledge exists in the organization and where it exists, revealing both gaps and duplication. provides an inventory of knowledge assets, allowing them to become more visible and therefore more measurable and accountable. provides vital information for the development of effective knowledge management programmes and initiatives that are directly relevant to the organization’s specific knowledge needs and current situation. It helps in leveraging customer knowledge.

Components of a Knowledge Audit • • • •

Knowledge need analysis Knowledge inventory analysis Knowledge Flow analysis Knowledge mapping

K-Needs Analysis

K-Inventory Analysis

K-Flows Analysis

K-Mapping

Knowledge Needs Analysis (K-Needs Analysis) • The major goal of this task is to identify precisely what knowledge the organization, its people and team possess currently and what knowledge they would require in the future in order to meet their objectives and goals.

Knowledge Inventory Analysis (K-Inventory Analysis) •

Knowledge inventory is a knowledge stock taking to identify and locate knowledge assets and resources throughout the entire organization.

Knowledge inventory Knowledge inventory analysis comprises of 2 entities: 1. Physical (Explicit) Knowledge inventory and 2. Corporate Experts (sources of tacit knowledge) inventory.

Physical (Explicit) Knowledge inventory of an organization:

• Numbers, types and categories of documents, databases, libraries, intranet websites, links and subscriptions to external resources • Knowledge locations in the organization, and in its various systems • The organization and access of the knowledge (how knowledge resources are organized and how easy is it for people to find and access them) • Purpose, relevance and quality of knowledge (why do these resources exist, and how relevant and appropriate they are for that purpose, are they of good quality - up to date, reliable, evidence based, making sense, relevance to the organization) • Usage of the knowledge (are they actually being used by whom, when, what for and how often)

ii.

• • •

Corporate Experts (sources of tacit knowledge) inventory:

Staff directory and their academic and professional qualifications, skill & core competency levels and experience Training and learning opportunities Future potentials-leadership potential

Knowledge Flows Analysis (K-Flows Analysis) •

look at knowledge resources move around the organization, from where it is to where it is needed.

•

The knowledge flow analysis looks at people, processes and systems

Analysis of people (K-Flows Analysis) •

examine their attitude towards, habits and behaviors concerning, and skills in knowledge sharing, use and dissemination.

Analysis of process (K-Flows Analysis) •

examine how people go about their daily work activities and how knowledge seeking, sharing, use and dissemination form parts of those activities, existence of policies and practices concerning flow, sharing and usage of information and knowledge

Analysis of system (K-Flows Analysis) •

examine technical infrastructure:

•

for example, information technology systems, portals, content management, accessibility and ease of use, and current level of usage. To what extend those existing systems facilitate knowledge sharing and flow, and help to connect people within the organization

Knowledge Mapping (K-Mapping) •

The knowledge map is a navigation aid to explicit (codified) information and tacit knowledge, showing the importance and the relationships between knowledge stores and dynamics.

• •

There are two main approaches to knowledge mapping: 1. Mapping knowledge assets and resources- the map shows what knowledge exists in the organization and where it can be found (holders of the knowledge-knowledge creator, collector, connector, users and knowledge critics, data repositories) 2. Mapping knowledge flows- the map shows how knowledge moves around the organization from where it is to where it is needed.

•

Deliverables of a knowledge audit • • •

A list of knowledge items (K-needs & current K-assets) in the form of spreadsheets A knowledge network map which shows the flow of knowledge items A social network map that reveals the interaction among staff on knowledge sharing

Challenges In Measuring Knowledge Assets • An An asset asset must must be be an an economic economic resource resource,, the the resource resource must must be be controlled controlled by by the the entity entity and and its its cost cost at at the the time time of of acquisition acquisition must must be be objectively objectively measurable measurable..

What Is Intellectual Capital? • Intellectual Intellectual capital capital is is “the “the intellectual intellectual material material -knowledge, knowledge, intellectual intellectual property, property, experience experience -- that that can can be be put put to to use use to to create create wealth wealth.. • Intellectual capital is the difference between the firm’s market value and the cost of replacing its assets!

Challenges In Measuring Knowledge Assets • The fundamental challenges involved in accounting treatment of knowledge assets are attributable to the specific characteristics of human knowledge – non-physical – non-appropriable – not measurable directly and – It is incompatible with conventions and institutions that guide the day to day transactions recorded by financial accounting and reporting.

Models For Valuation of Intellectual Assets • In In many many of of these these conceptualizations, conceptualizations, IC IC includes includes – Human Human capital capital i.e. i.e. the the value value embedded embedded in in the the skills skills of of employees employees ,, the the collective collective competence, competence, capabilities, capabilities, skills skills and and experiences experiences of of employees employees and and managers managers as as well well as as their their creativity creativity and and innovativeness. innovativeness. – Customer Customer capital capital -- firm’s firm’s customer customer relationships, relationships, and and

Models For Valuation of Intellectual Assets • In In many many of of these these conceptualizations, conceptualizations, IC IC includes includes – Structural Structural capital capital -- the the processes processes of of an an organization, organization, the the supportive supportive infrastructure infrastructure for for human human capital capital and and includes includes organizational organizational processes, processes, procedures procedures,, (Supply (Supply Chain Chain Management Management Process, Process, Project Project Management Management Process, Process, Talent Talent Management Management Process Process etc.) etc.) technologies, technologies, information information sources sources and and intellectual intellectual property property rights. rights.

Some Measurement Models in Research and Practice 1. “Goodwill”. Historically, intangibles were classified as “goodwill” in accounting practices and intellectual capital is a part of goodwill. 2. Balanced Score Card ( Kaplan & Norton) 3. Intangible Asset Monitor (Karl-Erik Sveiby, 1997) 4. Skandia Business Navigator ( Lief Edvinsson, 1997)

Balanced Scorecard Financial Perspective How do we look to investors? (EVA, cost reduction etc.)

Customer Perspective How do customers see us? (Satisfaction, retention)

VISION KM/ IC

Internal Process Perspective Are we productive and effective?

(productivity, waste, rework etc.)

Innovation & Learning Perspective Can we sustain excellence over time?

(Knowledge sharing, knowledge centers, Recognition & rewards, collaborative team working)

Intangible Assets Monitor Karl-Erik Sveiby •The Intangible Assets Monitor (IAM) is a method for measuring intangible assets and a presentation format which displays a number of relevant indicators for measuring intangible Assets in a simple fashion. •These indicators are classified into 4 categories •Growth •Renewal •Efficiency •Stability / risk •The choice of indicators under each of these heads depends on the company strategy. The format is particularly relevant for companies with large intangible assets.

Intangible Assets Monitor Karl-Erik Sveiby •The Intangible Assets Monitor is interested in indicators of change and knowledge flows, i.e. growth, renewal / innovation, efficiency / utilization and risk / stability measures. •The idea is to get a "peek" into how the intangible asset(s) are developing, by designing indicators that correlate with the growth of the asset in question, its renewal rate, how efficiently we are at utilizing it, and the risk of loosing it.

Intangible Assets Monitor Karl-Erik Sveiby Market Value

Tangible Net Book Value Indicators

Intangible Assets

Growth, Renewal, Efficiency & Stability / Risk

External Structure Indicators

Customer Customer // supplier supplier relationships relationships brand brand names, names, trade trade marks marks and and reputation reputation

Non - financial measures complement financial measures

Internal Structure Indicators

patents, patents, concepts, concepts, IT IT and and administrative administrative systems systems

Growth, Renewal, Efficiency, Stability / Risk

Individual Competence Indicators Skills, Skills, education, education, experience, values and social social skills

• The Infosys brand value stood at Rs 7,257 crore during fiscal 2002 as against Rs 5,376 crore in fiscal 2001. • Its market capitalization as on March 31, 2002 was Rs 24,654 crore as compared to Rs 26,926 crore as on March 31, 2001.

Intangible Assets Monitor Karl-Erik Sveiby Market Value

Tangible Net Book Value Indicators

Intangible Assets

Growth, Renewal, Efficiency & Stability / Risk

External Structure Indicators

Customer Customer // supplier supplier relationships relationships brand brand names, names, trade trade marks marks and and reputation reputation

Non - financial measures complement financial measures

Internal Structure Indicators

patents, patents, concepts, concepts, IT IT and and administrative administrative systems systems

Growth, Renewal, Efficiency, Stability / Risk

Individual Competence Indicators Skills, Skills, education, education, experience, values and social social skills

Intangible Assets - Score Card • Infosys Technologies has created a scorecard for intangible assets in its annual report. The objective is to give the analysts and investors another matrix for valuing the company true assets. • Infosys feels that as a software services company, it is a knowledge intensive company and attributes related to this do not get reflected in the other numbers within its balance sheet.

Intangible Assets - Score Card • Infosys believes that, besides the brand, other intangible assets of the company should also get reflected in its balance sheet, namely – Its ability to attract, develop, and nurture a set of competent professionals. – Its ability to leverage their learning ability, and to enhance the re-usability of their knowledge and expertise. – Its ability to attract and retain “marquee clients”. • The company has chosen to adopt the model given by Dr Karl Erik Sveiby for valuing its intangible assets.

Intangible Assets - Score Card • Infosys has divided its intangible asset score card under two headings : – External Structure (Clients) and Knowledge Capital – Organization (internal structure) and People (competency levels).

Some Matrices On The Score Card • Sales per support staff: Increased to Rs 257 lakhs for the year ended March 31, 2002 from Rs 235 lakhs for the year ended March 31, 2001. • Value added per employee: Has gone upto Rs 21.61 lakhs for the year ended March 31, 2002 from Rs 19.87 lakhs in the previous year.

Some Matrices On The Score Card • Investment in enhancing its intangible investment: Investment in IT/value added, a ratio designed to depict how much value can be added to projects by investment in information technology, has come down to 4.57 per cent from 9.32 per cent. • Investment in R&D/per value added: Has also come down to 0.66 per cent from 1.09 per cent, though this could be due to cost cutting measures adopted by the company in the fiscal year.

Some Matrices On The Score Card • Sales per client: Increased to 8.9 crore from Rs 7 crore. • The number of employees involved in support functions: Has come down to 9.79 per cent from 10.26 per cent. This means that the company has not been adding non productive support staff as it grows. • Marquee clients: Percentage of total revenues from image enhancing clients has gone up to 56 from 52 per cent.

Skandia Business Navigator (Lief Edvinsson, 1997) Market Value Shareholder’s equity Financial

Intellectual capital

Human capital

including Culture and management philosophy

Customer capital

M.S., customer satisfaction

Structural capital Organizational capital

Innovation capital Development & Renewal

Process capital Business processes

Some Matrices On The Navigator Score Card Financial: ( 17 parameters) • Total assets / employee • Revenue / Employee • Profits / Employee • Value added / Employee • Revenue / Total assets • Profit / Total assets • Revenue from new customers / Total revenue • Return on asset value

Some Matrices On The Navigator Score Card Human Capital: ( 26 parameters) • Employee turnover • Average employee years of service with the company • Average age of employees • Time in training (days/ year) • Company managers with advanced degrees - business(%), science & engineering(%) and liberal arts(%) • Leadership index • Empowerment index • Motivation index

Some Matrices On The Navigator Score Card Customer Capital: ( 20 parameters) • Market share • Number of customers • Annual sales per customer • Customers lost • Customer ratings • Customers per employee • Sales closed / sales contacts • Satisfied customer index • Average time from customer contact to sales response

Some Matrices On The Navigator Score Card Innovation Capital: ( 35 parameters) • Ratio of new products to full product catalog • Patents pending • Average age of patents • R&D expense / administrative expense • R&D invested in basic research • R&D invested in product design • R&D invested in process design • Training expense / employee • Training expense / administrative expense • satisfied employee index

Some Matrices On The Navigator Score Card Process Capital: ( 19 parameters) • Corporate quality goal • Corporate performance / quality goal (%) • Contracts files without error • Processing time , out payments • IT expense / employee • Cash to cash cycle time!

Knowledge Management practices help you build and sustain Intellectual Capital which would enable you to gain competitive advantage. •Valuation of Intellectual Capital helps you track - how far you have progressed in your Knowledge Management Journey to build this competitive advantage.