Measuring & Assessing Knowledge-Value & the Pivotal Role of the Knowledge Audit

Corporate knowledge is more-often-than-not invisibly created, captured, distributed and shared throughout the organisation. However, though somewhat illusive and certainly difficult to ‘pin-down’, organisational knowledge can indeed be quantified, measured and assessed. This is done by examining the tacit knowledge residing with the knowledge-people, and the explicit knowledge residing in the organisation’s data and document storage systems. Measurement and assessment further involves detailed examination of the knowledge capture, creation, distribution and dissemination processes and the capabilities of enabling technology that facilitates speed and efficiency of these processes. This paper provides insight and guidelines concerning the pivotal role of the knowledge audit in knowledge valuation. It seeks to demonstrate that the knowledge audit is an essential early step in measuring corporate or organisational knowledge-value, while outlining the main knowledge-values that the knowledge audit itself measures and assesses. In addition, it is contended that the failure of most, if not all, unsuccessful KM initiatives and programmes can justifiably be largely attributed to the exclusion of the knowledge audit. A very brief overview of the principles, methodologies and processes of a comprehensive knowledge audit is given. Accounting for all the intangible assets, and intellectual property such as: human capital, customer capital, patents and brands is paramount in the new economy. For instance, the greater proportion of most modern manufactured goods is innovation and knowledge: from automobiles to aircraft, from computers to sports equipment, from mobile phones to office equipment. These intangibles must be properly included in the corporate financial accounts. Intangible-knowledge-assets accounting must now show the corporate value of knowledge by demonstrating how it is, or how it can be, converted into purchasable goods and services: for instance, the innovation elements of the modern automobiles. This is the purpose and role of knowledge management. The problem is that, intangible assets are not easy to quantify, measure and value. The universally acknowledged difficulties encountered in attempting to quantify and measure corporate knowledge-value offers a strong case for the knowledge audit. The knowledge audit is the first major stage in effective knowledge management and corporate knowledge valuation. The Knowledge Audit & What It Achieves The knowledge audit (K-Audit) is a systematic and scientific examination and evaluation of the explicit and tacit knowledge resources in the company. The K-Audit investigates and analyses the current knowledge-environment and culminates, in a diagnostic and prognostic report on the current corporate ‘knowledge health’. The report provides evidence as to whether corporate knowledge value potential is being maximised. In this respect the K-Audit measures the risk and opportunities faced by the organisation with respect to corporate knowledge. Measuring & Assessing Knowledge-Value & the Pivotal Role of the Knowledge Audit Copyright © 2002 Dr Ann Hylton 2 The K-Audit is, or should be, the first stage in the KM programme providing, accurate identification, quantification, measurement and assessment of the sum total of tacit and explicit knowledge in the organisation. The knowledge audit process involves a thorough investigation, examination and analysis of the entire ‘life-cycle’ of corporate knowledge: what knowledge exists and where it is, where and how it is being created and who owns it. It measures and assesses the level of efficiency of knowledge flow. From knowledge creation and capture, to storage and access, to use and dissemination, to knowledge sharing and even knowledge disposal, when the organisation is no longer in need of particular elements of explicit or codified knowledge. With respect to people, the K-Audit measures the efficiency of transfer of tacit knowledge skills, when particular skills or expertise is no longer needed. The K-Audit process includes a structural knowledge audit which facilitates the mapping of internal organisational knowledge sources and the flow of knowledge within the organisation and between the organisation and its external environment, in particular partners and customers. It therefore charts the formal and informal knowledge and communication networks and the internal and external relationships that exist within this environment, and spotlights knowledge flow and knowledge gaps, in the organisation. The knowledge audit is in effect the Knowledge-Valuator, as it computes and assesses the knowledge components and entities in the organisation. By so doing, it provides a clear indication of how well corporate knowledge is currently exploited for business and competitive advantage and, therefore, for profit, and in what way the management of corporate knowledge can be improved. A K-Audit therefore, contributes to the company’s improvement of its market and financial value by providing researched, evidence-based information and knowledge as to the ‘real’, existing and potential corporate wealth, most of which would remain hidden and under valued. KM Failures: Largely Attributable to the Exclusion of the K-Audit! Knowledge Management initiatives and programmes fail dismally; with only at best 15% success rate. The failure of knowledge management initiatives to achieve targets over the past decade has been the focus of much discussion amongst knowledge management professionals and business analysts. This has intensified during the past two or three years as indications from a number of credible sources suggest that many recent and newly planned knowledge management initiatives and programmes are also doomed to fail. Industry analysts predict that by next year, 2003, Fortune 500 companies alone would have lost 31.5 billion USD as a result of failed KM. The question then arises as to what has gone wrong, and will continue to go wrong? Why are knowledge management initiatives failing? There are many sound responses to the question. For instance, KM Guru Thomas A Stewart in his paper “The Case Against Knowledge Management” (2002), pointed out that companies waste billions on knowledge management because they fail to figure out what knowledge they need, or how to manage it. It takes little imagination to work out that a knowledge audit would provide researched evidence to help companies or organisations ‘figure out what knowledge they need, and how to manage it’. The K-Audit provides the framework for the audited unit to gain measured knowledge of its existing and potential knowledge value. It this authors position that much of the mistakes of both the early and more recent adopters of knowledge management can be traced to the serious oversight of not including the knowledge audit in their overall knowledge management strategy and initiatives. Measuring & Assessing Knowledge-Value & the Pivotal Role of the Knowledge Audit Copyright © 2002 Dr Ann Hylton 3 The knowledge audit is the indisputable first step in KM, and in the measurement and determination of corporate knowledge-value. The failure to incorporate the K-Audit in each and every KM initiative-programme is the single most important reason for poor KM outcomes, and consequent failed efforts at corporate knowledge-value determination. What gets measured gets managed: What gets audited gets included KM is about the efficient and effective management of corporate knowledge. A major problem with most past and present KM initiatives and programmes is the failure to properly identify and measure existing and potential knowledge in the organisation. So how then, can knowledge be properly managed? Once a decision has been made to implement KM in the organisation, the knowledge audit must be factored in as the essential, major first step. The role or purpose of the K-Audit in the KM initiative is to scientifically measure and evaluate the current corporate knowledgewealth, both evident and hidden, so that the right KM programme can be planned and implemented, in the most cost effective way. The rationale here is that without sound measurement and assessment, corporate knowledge cannot be properly managed. Further, because the K-Audit unearths and makes visible hidden knowledge, more of the organisations potentially valuable knowledge can be included in a KM-initiative, than if there had not been a knowledge audit. Tangible Benefits of the K-Audit in K-Value Measurement Most senior executives would have to acknowledge that they do not know the full extent of their corporate knowledge-assets and knowledge-capital, and how to identify these assets. Two recent high profile examples of major corporations that obviously did not know the extent of their knowledge-value, highlights the tangible benefits of the knowledge audit in the knowledge valuation process. First: UK dominant British Telecommunications company, BT, claims that it has ‘owned’ the US patent for one of the key elements of the worldwide web, the hyperlink, since the late 1980s, which BT alleges that it invented in the 1970s. Although, the internet/www emerged and grew exponentially during the 1990s, the powers that be at BT remained oblivious of this potential and actual goldmine that was hidden away in a well ‘secure’ vault. It was not until year 2002 that BT accidentally came across the patent during a routine update of its 15,000 global patents. BT is currently feeling the pain of such oversight with a costly and lengthy court case in the USA. Second: Dow Chemical is a leading science and technology company that provides innovative chemical, plastic and agricultural products and services. The company, reportedly, grossly neglected its immense goldmine patent database, which contained over 29,000 patents. Dow Chemical therefore had not properly measured and accounted for the wealth of intellectual property that existed in those pat