There have been a fair number of people in the blogosphere over the last few years who have trumpeted that KM is “Dead” – some of them mean it in an ironic way or simply as a provocative hook to get eyeballs on their blogs, some think the way we understand KM is changing and that the old ways are “dead”, and some actually believe that KM is a term best ceded to IT and that the next shiny thing beckons – be that complexity, agile, or something else.
The real acid test is whether there is an increase in the number of jobs that are either about KM or require some degree of expertise in it, and whether they mention KM activities or compliance with KM practices as an essential part of jobs – But this is something I can’t answer just yet, since getting Monster, Indeed, etc. to pony up data on what KM jobs there were over the past decades is not easy.
Until then, let’s look at three things that would individually drive a need for Knowledge Management.
- Business variance and volatility – i.e. “Turbulence”
- Increase in the share of firm’s market capitalization due to Intangible Assets
My position is that the swell produced by each of these three market dynamics would individually create a need for Knowledge Management, but that collectively they make it an imperative – firms that do not get this right are in my view already dead men walking.
One of the markers I look for in firms to tell me if Knowledge Management is likely to deliver ROI, is the degree to which they are subject to variation and volatility. To get a metric on that I measure inter alia the following:
- Change in regulations, laws, technologies, and players in their market space.
- Product churn and variation
- Staff turnover, skills variation, and performance variation.
Many economists have a similar measure that they simply call “Turbulence”
Here’s an interesting image that is typical of a measure of turbulence that just keeps showing up wherever one looks. It is a measure of business change in terms of new startups, mergers & acquisitions, business closures, etc.
This example is focused on healthcare, but as I said, the same shape keeps showing up – very little turbulence in the decades prior to the 70’s, with an explosion in the 90’s, and a small amount of calming running through the oughts, but no sign of anything like a return to the stable days of the 50’s and 60’s.
This is the “new normal” of the business world, with turbulence of an order of magnitude higher than what was previously “normal” and a status quo in which turbulence is a constant companion.
The days of a person doing the same job for decades, or a firm staying in the same business, or ownership of the firm staying constant are gone and never to return – and consequently, the ability to acquire knowledge fast, to be able to use it effectively, and to be able to “manage” one’s knowledge assets both tacit and explicit are critical to survival both for individuals and for organizations.
As per the image from Savage (1996) there was a time when “wealth” pretty much meant owning land – Being a big landowner meant having status, position, power.
Then it shifted to access to labour and wealth meant being able to acquire, mobilize, and manage a workforce.
Then it was having access to capital to fund business operations.
… and now it means controlling knowledge.
Over the last century, the proportion the market value of a publicly-traded firm that an auditor could capture with the balance-sheet in one hand and a pencil in the other has gone from over 90% at the start of the 1900’s to a low of under 20% in the 2010’s. The balance is made up mostly of “Intangible Capital”, and was often tossed into a bucket marked “goodwill”.
In fact, if you look at the data from Ocean Tomo, just since 1975 the proportion of market value of the S&P 500 has gone from just 17% to 80% in 2010.
So picture this if you will – you are an investor, and you have a bag of cash and want to grow it by purchasing a firm that you believe stands ready to take advantage of new needs and to generate a tidy profit for you (or your backers). You send in the bean-counters, and they take stock of the firm, ticking off as they walk the premises every line item on the balance sheet – raw materials, buildings, plant and equipment, finished goods, cash in hand, etc. By the time they have met with your banker (who might also want to see the results), and have walked the floor, they could give you circa 1910, an account that was close to 90% accurate as to the worth of the firm.
No doubt you would be happy with this statement of affairs and you could make the purchase with not too many sleepless nights.
Barring unforeseen circumstance, all should be well and the small amount that was unaccounted for and lies in the entry marked “goodwill” was merely icing, and if push came to shove you could just sell off the assets and still be in the black.
Fast forward to 2012 and your accountants return to you a balance sheet and inventory that reflect only 20% of the value of the firm, and they report that they think that maybe there is another 80% hidden in the “goodwill” line, but they aren’t sure. It may be 0%, it might be 90%, they just don’t know.
You spend days with your stomach churning, and if you represent investors, you fret over how you will explain this.
At this point investors, bankers, analysts, and increasingly shareholders, are simply not satisfied.
Leaving 80% of the value of a firm to guesswork simply is not acceptable, and they have various plans afoot to force firms to identify the value of their intangibles – ranging from the SHRM attempt to have value metrics for Human Capital, to more complex evaluations of the worth of a firm’s knowledge.
2012 saw some banks put dollar value against patents for the purposes of loan collateral, and who can forget all the patent auctions of 2011-2012, with more no doubt coming.
IC is no longer something that is seen as a bit of icing, it is now the major part of the cake itself – >80% in fact.
We talk a lot about the “Baby Boomers” and their immanent retirement, but have you ever actually seen it?
Here is what a population pyramid for Germany looks like:
(Source US Census Bureau 2012)
What this means is that there are way fewer people in each age-group following those who are now at the peaks of their career, and the number of people entering the job market won’t be able to fill the spots as the groups above them shift up and the oldest shift out. The bulk of that 80% of value represented by IC lies in the skills, knowledge, and traits of the knowledge workers you employ – and generally the older ones are the most valuable to you. They know how, they know what and when, and most of all, they know why.
If you create a population pyramid for the Knowledge Workers in your firm, you might be in for a nasty shock (especially those of you with a need for highly-skilled practitioners such as engineers, planners, and managers) – you simply might not have enough people to replace the older skilled workers as they shift out of the job market, and you don’t have all that long to figure out what to do. In fact, in some firms it is already too late, they are simply going to go bust as their older and most experienced and qualified people retire.
The best such firms can do is plan for a somewhat orderly shutdown.
Let’s agree not to play “definition” bingo and to go down the rabbit-hole of the myriad somewhat-overlapping definitions of “Knowledge Management”, and suffice it to say that what we are trying to achieve is to have a clear picture of what the organization needs to know in order to execute its operational activities, to organize, regulate, control that required knowledge, and to maintain levels of it sufficient to meet operational needs.
So if we were to lay out an ISO9000 diagram of all the operational processes necessary to achieve the organization’s tier-1 goals, and then determine for each activity in the flow what the person would need to know, we would arrive at a list of what knowledge was minimally necessary (and perhaps not even sufficient) to meet EBITDA and other requirements.
The terrain in which KM practitioners operate is for the most part that of Intangible Capital, as depicted below.
(Adams & Oleksak, 2010)
The role of the person(s) responsible for Knowledge Management in the organization would be to see that the needs for knowledge were identified, to identify and measure the degree to which these were met, and have a plan and processes to make sure that the organization acquired, maintained, and put to work that knowledge in the most cost-effective and timely manner possible.
This is not going to be the IT guy any more than the IT guy is responsible for running the finances of the organization.
There has never been another time during which control over knowledge assets has been more important, and firms that do not have a robust knowledge management practice humming along will experience very high rates of failure as we track forward.
Far from being “dead”, knowledge management is going to be a significant determinant of which firms survive, and which roll over and sink as the combined effect of turbulence, the value of IC, and demographic change swells up around them.
Adams, M., & Oleksak, M. (2010). Intangible Capital: Praeger.
HBR (2012). The Volatile U.S. Economy, Industry by Industry Retrieved 09/04/2012, 2012, from http://hbr.org/web/slideshows/the-volatile-us-economy-industry-by-industry/1-slide
Ocean-Tomo (2010). Intangible Asset Market Value Retrieved 09/04/2012, 2012, from http://www.oceantomo.com/media/newsreleases/Intangible-Asset-Market-Value-Study
Savage, C. M. (1996). Fifth generation management : co-creating through virtual enterprising, dynamic teaming, and knowledge networking (Rev. ed.). Boston: Butterworth-Heinemann.
Matthew Loxton is a Knowledge Management practitioner, and is a peer reviewer for the Journal of Knowledge Management Research & Practice. Matthew holds a Master’s degree in Knowledge Management from the University of Canberra, and provides pro-bono consulting in Knowledge Management and IT Governance to various medical institutions.