LLRX has a new article up discussing the experience of Bryan-Cave in attempting to determine the Return on Investment of a major firm-wide Knowledge Management
initiative.
First, the article discusses, from a conceptual perspective, whether the
notion of ROI even applies to a KM project. Traditionally,
ROI is easy to measure (meaning hard to fudge) with cost-saving initiatives,
such as scanning and digitizing a sub-basement full of documents, but
much harder to measure (and easier to blue-sky) with revenue-generating
initiatives, such as a marketing campaign.
Knowledge Management yields benefits, of course, which are far more
intangible even than marketing. How can one put a price tag on
such things as:
- more efficient and effective collaboration
- faster and more targeted responses to client issues
- less rote work and more high-quality work
The answer is, with a great deal of discipline.
Lucidity is the great virtue of this article.
Without claiming that it missed any key points, the main point that should always be addressed in these reviews of so-called ROI is the following.
The key characteristic of “the Future” is uncertainty. In business situations, uncertainty becomes a practically approachable condition when the business decides to not be all things to all people, and to not be everyplace at once. The compelling, breakthrough operational notion here is “selection”, which quickly leads to two focal points. One, strategy; and two, opportunity cost.
Strategy, simplified, is the art of deciding where you are going to be and why you are going to be there. This is about believing, with more or less validating data, that a certain position affords more of the preferred advantages than do other positions. Businesses must remember that their positions, both current and future, are actually “preferences”, and they must not fall under the mythological spell of “requirements”. Businesses run by mature managers know that they will have to “take the pain” that comes with assuming and sustaining a position, and changing that position will mean taking pain as well. Positions thus are perhaps always far more painful, in essence, than they are ever required. That said, if pain is accepted, there might still be considerable ease in taking and holding a position. Pain-avoidance will typically be the pathological inhibitor that inspires rationalizations that confuse everyone about ROI.
Second, the notion of advantage inevitably comes with having made tradeoffs, because advantage comes from position and position comes from NOT being “somewhere else”. Other positions have value too, so when investing in a position, there is always the call for understanding whether additional options (value) will be precluded and/or eliminated, or whether that will not be the case. ROI is comprehensible mainly in being bale to understand whether an investment increases the likelihood that “more choices become more viable” for the purpose of achieving business objectives. This is an effect that may be achieved as a remedial outcome as well as an enhancement. Existing positions may be improved; new or additional positions may have their costs and burdens lowered; threats to achieving or sustaining positions may be diminished; all of these effects are the “return” on investment, and all are measurable. The key of course is to be able to quantify the value of the positions in question. Just having a position does not make it valuable; rather, it creates an opportunity to generate and capture value.
So, by simplifying the reckoning of what matters and what does not, ROI becomes a simpler concept.