䊉 Potential/optional – a project for which the business case, budget or stakeholder support is not assured, but which is shown on the programme as a recommended option.
Certain timeframe designations are also useful:
䊉 Milestone – an assumed decision point or anticipated project completion.
䊉 Short term (e.g. 1–6 months) – may fall into the same category as quick win.
䊉 Medium term (e.g. 6–18 months) – typically dependent on other factors (such as delivery of earlier projects or on future budget approval).
䊉 Long term (18 months +) – not necessarily well defined in terms of benefits case and certainly liable to change in detail.
Once the strategy has been formulated to an acceptable level then it is time to understand in greater detail the benefits that individual projects, or a programme, will bring: indeed, only once this is done will most organizations free up sufficient budget for the programme to commence.
3.1.2 The business case – clear benefits
The ‘chasm of faith’
The initiatives The ultimate benefits
KM programme
Technology changes
Communication
Training
Support
Increased customer service
Increased profit and value
Increased innovation
Corporate objectives
any benefits delivered may be extremely hard to measure anyway).
Unfortunately, the other side of this coin is that, in other organizations, the case for knowledge management has been unclear and unconvincing. The benefits – which relate to things like ‘intellectual capital’, ‘knowledge sharing’ and ‘inno- vation’ – are seldom clearly calculable, or proven to result in dramatic productivity gains – and in cultures where the doctrine of ‘if it can’t be measured, it can’t be managed’ is pursued in a fundamentalist way, this has led to KM projects never getting off the ground (or never being pursued in the first place).
The third way is perhaps the most familiar one (though perhaps becoming less prevalent as time goes on): a business case is cobbled together that jumps company hurdles for investment approval, but which is set aside almost immediately once approval for a project is gained.
Figure 3.1 presents a story all too common in IT projects – where a
‘chasm’ of faith separates the activities proposed and the benefits aimed for. Such a gap requires a gamble by those authorizing the project – a gamble managers are less and less inclined to take, as IT management matures as a discipline, thanks in no small part to experience of many technology projects which have failed to deliver significant benefits to the business.
Figure 3.1 The ‘chasm of faith’
often seen in business cases
Consequently, when using funds from IT budgets, those signing off knowledge management projects have increasingly required a watertight business case, due in no small part to confusion as to what KM actually is, and the wide range of expectations and perceptions that follow from this.
We have dedicated so much of this book to the question of a KM business case to help those developing KM programmes create a robust and compelling case for change, based on the benefits of mobilizing knowledge.
Figure 3.1 shows, on the left, some proposed initiatives – these can be projects, activities, or tasks. (Only a small sample of typical initiatives is shown in the diagram – any real programme is likely to differ substantially.) The items in this column make up the majority of cost and resources required for the investment.
On the right are the ultimate end benefits that the decision- makers are really interested in. Here we are talking about such end goals as lower costs, higher revenues, improved profits, higher market share, return on investment, and increased shareholder value.
In an ideal business case – one which comes across powerfully to justify significant investment – the initiatives must be clearly linked to outcomes: for example, if we do X then this delivers benefit Y. Sadly, all too often, initiatives and ultimate benefits are both spelled out, but the direct linkages are unclear or ill defined.
We call this the ‘chasm of faith’.
It follows that what is needed is something else to fill this chasm and prove cause and effect – some intermediate benefits, which form a bridge to the end goals. The following section looks at how we might use a set of generic business benefits which can be deployed to construct this ‘bridge’, and which are also useful in structuring early benefits-focused conversations with stake- holders. Such conversations – carried out alongside the vision and audit steps – help clarify priorities and uncover risks associated with the various possible courses of action.
Balanced Scorecard approach
One of the most useful tools to link up initiatives with ultimate strategic benefit objectives is the Balanced Scorecard, as defined by Kaplan and Norton (1996). There is substantial literature associated with the development of scorecard-based approaches
such as the Kaplan and Norton method, or the Navigator method developed by the Scandinavian insurance giant, Skandia. These developed out of a coming together of a number of influences:
䊉 The growing concern at the failure of traditional accounting measures to provide an accurate company valuation – difficult when balance sheets are built around cash and the book value of assets, while stock market valuations are based essentially on sentiment surrounding potential future performance.
䊉 Related frustration with the backward-looking nature of traditional company measures.
䊉 The apparent inability of traditional accounting to adequately value intellectual capital, leaving a sizeable gap in tools for performance management.
Measurement systems within organizations have long been focused on financial measures – most accounting rules are property-based, going back to the Middle Ages – ignoring the core non-financial competencies that are needed in today’s environment. With the increasing focus on measurement that has been the legacy of the ‘Quality’ movement, this has proved a serious gap. From a KM perspective it is largely through non- financial indicators that knowledge management gives its most immediate impact. The four perspectives proposed by Kaplan and Norton allow a robust and balanced view of measurement, essential if knowledge management initiatives are to success- fully fight for funding alongside other pressing matters. For our benefit framework, specifically focused on knowledge manage- ment, we use the Balanced Scorecard concepts as our basis. It is therefore essential that a basic understanding of it is gained before we progress.
Scorecard – four into one
Within the main body of the Balanced Scorecard are four perspectives:
䊉 Financial
䊉 Customer
䊉 Internal business process, and
䊉 Learning and growth.
These four perspectives are shown in Figure 3.2. The aim is to represent a balanced view of business, to improve managers’
Financial
Customer
Learning and growth
Internal business processes Vision and
strategy
ability to make sense of a range of measures, and so improve how the organization is managed.
The following are extracts from Kaplan and Norton (1996) are reproduced, with additional comments, in order to further explain the concept:
Thefinancial perspective:‘serves as the focus for all of the other perspectives . . . The financial themes of increasing revenues, improving cost, and productivity, enhancing asset utilization, and reducing risk can provide the necessary linkages across all four scorecard perspectives.’ (p. 47)
The financial perspective is the area where the most compelling business cases are strong. Demonstrating how the knowledge management initiatives can make a difference to the financial perspective is powerful message from. Perhaps the best oppor- tunity for knowledge management techniques in this area is in knowledge reuse – demonstrating that cost savings can be made from reusing or repurposing existing content or collateral.
The customer perspective: ‘represent[s] the sources that will deliver the revenue component of the companies’ financial objectives Figure 3.2
The four perspectives of the Balanced Scorecard
(Kaplan and Norton 1996)
. . . [It] enables companies to align their core customer outcome measures – satisfaction, loyalty, retention, acquisition, and profit- ability – to targeted customers and market segments.’(p. 63).
Being customer ‘obsessed’ is the key objective for many organizations. By meeting customer objectives (and by demon- strating this to stakeholders), the organization is more likely to have a stronger performance financially, for example with improved customer satisfaction leading to reduced medium- /long-term costs of doing business through happier and more closely tied customers, more repeat business, and lower cost of sales. In addition, better knowledge about customers’ prefer- ences and behaviours helps individuals and groups better meet their needs. If you don’t understand what customers want and need, then the chances of increasing their satisfaction are slim.
Theinternal-business-process perspective:‘[is where] managers identify the processes that are most critical for achieving customer and shareholder objectives . . . We recommend that managers define a complete internal-process value chain.’(p. 92)
The business processes that organizations follow, and the day- to-day activities performed, should be adding maximum value.
Like clothes in a wardrobe, processes can build up and turn into clutter if not cleared out regularly. Are there processes still performed even though they no longer add value? Are there processes which are too complex, slow, or not delivering the right level of quality? By getting the business processes right, and focusing on those that make a difference, then organizations can directly contribute more to customer satisfaction, and help meet financial objectives.
Knowledge and information are used in and produced by business processes. As proposed during the previous audits, knowledge-intensive processes that actually make the most difference to an organization are where initial energies should be focused. If knowledge creation, sharing, and reuse is poor within an organization then the potential for business processes to add value is probably not being realized.
The learning and growth perspective: ‘provide[s] the infra- structure to enable ambitious objectives in the other three per- spectives to be achieved . . . [it] stresses the importance of investing for the future . . . [there are] three principal categories [of objectives]
Internal business process perspective
Learning and growth perspective Customer
perspective Financial perspective 䊉 Employee capabilities
䊉 Information system capabilities
䊉 Motivation, empowerment, and alignment’ (pp. 126–127).
This perspective is the very essence of knowledge management – it deals with how people obtain information, and whether they have the means and motivation to add meaning to it, act on it, and build value from it.
Efforts to improve employees’ ability to learn and innovate, and to develop and share knowledge they hold, directly impacts their performance and of those around them. This has many positive side-effects. People become more flexible as they understand more choices and the ‘bigger picture’. They can better uncover and deal with business process inefficiencies – leading to continuous improvement. Consequently, they are better able to add value to the organization and its customers, as well as increasing their own value in the employee marketplace.
The first thing required when creating a business case is to understand the organization’s objectives using the Balanced Scorecard perspectives and how they interrelate. For example, the objectives from the learning and growth perspective are likely to support objectives in the other three perspectives.
Figure 3.3 shows typical cause-and-effect links between perspectives.
Here the financial perspective is at the highest level, with objectives from the lower perspectives contributing to its objectives. Second the customer perspective objectives are
Figure 3.3
The cause-and-effect nature of objectives in each of the
perspectives (adapted from Kaplan and Norton 1996)
contributed to by the objectives of both the internal business processes and learning and growth.
The learning and growth perspective, therefore, underpins all the other perspectives, and this is where knowledge manage- ment efforts should focus. For example, by learning and growing, the organization will be able to better improve its business processes, these will better be able to meet customer needs, and therefore financial results should be improved.
Bridging the chasm
With the occasional exception, it is unlikely that chief executives or other senior managers will ever be interested in knowledge management for its own sake. Strategic considerations aside, the business of day-to-day management, focused on quarterly trading figures or performance targets, tends to be about generating short-term profit, whether by going for sales growth or by cutting ‘slack’ or spare capacity from the operation. Short- term thinking is very much at the heart of management culture in most organizations – and this is unlikely to change any time soon. Preparing and presenting a compelling case for action where the financial payback from the investment may be more long term is a challenging task – but there are ways to improve the chances of a business case being successful in winning support.
This is where understanding the key corporate drivers’ is important – knowing what the hot buttons are, and the areas of pain in the business, will allow you to identify appropriate strategic action, and articulate beneficial outcomes in the form of tangible benefits.
In order to create a compelling case, there is an important challenge for those creating it: to leave behind our tendency to be subjective. We can illustrate the possible confusion of being too subjective by taking the survival and growth of a tree as an example. Can one objectively say which of sunlight, water, soil quality, wind strength, and temperature variations is the most important variable for a tree? They all contribute to the tree’s well- being, but can we monitor and measure and create the ideal mix?
As we cannot understand all the relevant influences, or really have any control over them, then all we can do is single out those which we are most certain about. What to select will depend on a number of factors, including the specialisms and enthusiasms of the people involved, and the qualities most
desired from the tree – for example, quality of seeds, flowers, leaves, or long-term growth? We could also question if we should just be talking about trees. What about all the different kinds of shrubs? A health warning should be applied to this type of thinking – too much detailed analysis can be counterproductive!
With knowledge management there are many influences as well, and the emphasis chosen will depend hugely on specific organizational needs, culture and values. The moral of the tree example is to focus only on those elements that will make a real difference. Widen the scope too much and the questions become impossible to answer, and the case for knowledge management will become too confusing.
The suggestions for business case creation in the following pages can provide only a generic framework with some rules of thumb that the authors have found valuable in working with customers. It is then down to readers to apply these ideas in their own organizations in the most appropriate manner. We also recommend the text The Information Paradox (Thorp and DMR Consulting, 1999) for further reading on realizing business benefits from IT.
When preparing a business case, it is useful to work with adapted Balanced Scorecard categories:
䊉 Knowledge and information availability (learning and growth) and personal competence (learning and growth)
䊉 Internal business process
䊉 Customer and stakeholder
䊉 Corporate.
We begin by using these benefit categories to start to bridge the
‘chasm of faith’ as shown in Figure 3.4. Note that our methodology assumes that the majority of the links across the
‘chasm’ will likely be sequential, with the personal competence improvements contributing to internal business process improvement, and so on. However, in practice, there will also be many examples where the links skip the sequential flow. One such example is where efficiency savings arising from research and development activity are not visible to the customer, but go straight through as corporate cost saving.
Going through these benefit categories enables us to choose which, if any, are likely candidates for inclusion in the benefit map associated with our KM projects.
The initiatives The ultimate benefits
KM programme
Technology changes
Communication
Training
Support
Increased customer service
Increased profit and
value
Increased innovation
Corporate objectives
Knowledge and information
availability
Personal competencies
Internal business processes
Customer and stakeholder
Clarity is essential when identifying benefits, the temptation is to express potential improvements in language such as ‘better quality information’, ‘improved processes’, or ‘happier custom- ers’. But this is highly subjective language: what is precisely meant by ‘better’, ‘improved’, or ‘happier’? This leaves the exercise open to misunderstanding.
The way round this is to formalize the language of ‘benefit’. We use only five verbs, with the useful mnemonic acronym CRIME:
䊉 Created, e.g. created pricing structure
䊉 Reduced, e.g. reduced number of complaints
䊉 Increased, e.g. increased satisfaction
䊉 Maintained, e.g. maintained market share
䊉 Eliminated, e.g. eliminated costs.
Clarifying what is meant by ‘better’ is made much easier when you can use this list.
With precise language should go precise measurement – only with this can the ability to manage the benefits be demonstrated.
It is essential that for each benefit appropriate measures are stated. These can be very difficult to define for certain knowledge management benefits, although it is an essential step along the way to a compelling business case. We will now go through each benefit category, and explain its possible use in a Figure 3.4 Using interim benefits to fill the ‘chasm of faith’
Knowledge and information
availability
Personal competencies
Internal business processes
Customer and stakeholder
Corporate objectives
KM context. Alongside each benefit entry is a proposed measure. This is not meant as definitive or prescriptive, but as a useful guide and reminder that all benefits must have some quantifiable measure associated.
In the list below, only the key benefit categories important in knowledge management, have been included.