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Re: Weighing the benefits of productivity improvements #value

Bill Dixon
 

Hello Yao,
 
I was asked a similar question this morning and have also been formulating a response. 
 
I like the general approach you have taken in the draft of your article.  Without getting in too much detail, you do a good job describing one of the potential benefits of KM.  In our environment, KM can also help mitigate risk.  By leveraging not only best practices but by avoiding worst practices, we avoid making potentially costly mistakes over an over again.  The impact on the business can be significant.
 
I am adapting Yelden and Albers (2004) (http://www.tlainc.com/articl69.htm) approach to establishing business cases for KM initiatives to our environment.  They advocate the following framework for developing business cases around KM initiatives:,

1.      Strategy assessment

2.      Knowledge audit

3.      Knowledge and business strategy alignment

4.      Opportunity identification

5.      Value, business benefits, and evaluation

6.      Risk reduction techniques

"In order to make a successful justification, it is necessary to clearly identify all the options available with the associated risks involved with each choice.  Furthermore, it is required to first identify and separate the benefits of a given initiative, then determine its value to the firm, before proceeding to infer an associated cost and expected return for undertaking the effort.  Clearly delineating the expected hard and soft benefits of each aspect of the initiative will greatly aid in effectively justifying its need."

I will send you a copy when I am finished. 

Thanks for sharing your draft.

Regards,

Bill Dixon,

Ernst & Young, LLP

 
 

----- Original Message -----
Sent: Wednesday, August 13, 2008 10:16 AM
Subject: [sikmleaders] Weighing the benefits of productivity improvements

Hello KM peers, I am once again asked to justify what I am doing by associating my work in KM area to impact to business bottom lines such as hard-savings. This type of request must be common across KM and other collaboration related areas. It is a fair question but quite difficult to articulate.
 
Below is a short article I just wrote on how to measure the benefits of productivity improvements and I would like to hear what this group thinks on this topic (not only on workplace efficiency but also KM/Collaboration/Innovation etc). Thanks in advance!
 

One of the most significant challenges in today's knowledge work is to deal with explosion of "Information Overload". The saving of workers time in searching, accessing, and filtering the vast amount of information scattered across personal desktop, shared workspace, and enterprise repositories can be measured and potentially translated to hard-savings in workspace.

In the age of industry evaluation, we measure productivities by yields and through-put of the workers on the assembly lines. It is a bit harder to measure the productivities in the information age as knowledge work performed today as less mechanical and procedural in nature. Some type of work such as research and development can be measured by number of patents, number of design iterations, and product development lead times.

As an example, according to an IDC study, a knowledge work spends around an average of 9.5 hours per week searching for information. Based on the average salary plus benefits of $60,000/year from Department of Labor (2005), this would translate to $14,251.90 a year per worker. With improved enterprise search, there are two possible out-comes depends on the nature of the work. The knowledge workers can reduced the amount of the time spent on search for information. Or the they might actually spent the same or even more time on searching but discover more relevant information which results in improvements in the quality of the job deliverables. In the first case, a saving 10% of the time (1 hour per week) can be translated into potential saving of $1,425 a year per worker. If we only effected a 10% of the knowledge worker population at Ford, that would a saving of 3,000 x $1,425 = $4,275,000. Can this be translated to reduced workforce in term salary and benefits paid? Probably not, but we can safely say it would positively impacted the business bottom line indirectly through better work through-put, increased quality, and improved morale (reduced stressed at work). The second scenario is much harder to measure. If a research scientist can find a new connections among previously unknown facts due to improved search performance, the impact of productivity gain can be measured by new patents and innovate products that changes the competitive landscape in the industry. As we can tell, the benefits of various technologies on productivities can be measured directly through the amount of time saved. But the impacts are far more indirect and potentially very significant.

As you can see, there is a lot of "IF" statements. To a large degree, The numbers are anecdotal but yet very convincing to reflect the order of magnitude of the positive impact. Like other strategic investments, such as Knowledge Management, the returns are mixed with multitude of other internal and external factors when it comes to impact on bottom line. In a business environment of doing more with less, productivity improvement is not a "nice to have" but a basic element for survival.
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