November 22, 1999

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Myths & Realities
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Myth No. 7: Knowledge management dramatically affects the bottom line.
Trying to "measure" an intangible such as knowledge is tricky business. That makes calculating the return on investment of a knowledge-management initiative even more difficult. Some even say such calculations miss the point. "This isn't a project-level activity. This is strategic," Prusak says. The goal of most knowledge-management efforts is--or should be--to make a company more competitive by helping it become more innovative and by providing a vehicle for making better, faster business decisions.

To be sure, there are cases in which returns can be calculated from tactical, narrowly focused knowledge-management efforts. Xerox's Eureka program has reduced service labor and parts expenses by 5% to 10%--approximately $10 million--per year, according to Holtshouse.

Robert Buckman, CEO of Buckman Laboratories, says employees have become more innovative with help from the company's knowledge-management network. And that, he says, has been the major factor behind a steady increase in sales of new products as a percentage of Buckman's total sales, from 15% in 1987 to nearly 35% today.

Scient's knowledge-management programs are designed to improve productivity, innovation, and quality. While innovation and quality ultimately affect a company's bottom line, Kalish acknowledges that measuring the effect is difficult. But productivity gains are easier to quantify. For example, Scient's knowledge-management operation produces profiles of prospective customers for the company's sales force in as little as an hour--a major improvement over the 10 hours it took the sales force to create such profiles manually.

Knowledge-management systems can also improve employee efficiency by making it easier to locate people or information. Studies have shown that the average worker spends 60% of his or her day looking for or validating information, according to PricewaterhouseCoopers' Havens. Cutting that amount by 10% to 20%, she says, will have a positive impact on a company's profitability.

But several managers say they've seen knowledge-management efforts falter because impatient top executives insisted on quick returns. When they don't get them, says Buckman, "they abandon the effort, saying, 'It doesn't work.' That's a bad way of looking at it."

Myth No. 8: To be successful, knowledge management must be implemented on an enterprise basis.
"Let's hope that knowledge management can be focused on a narrow view or tactical approach within an organization," says Bob Moran, an analyst with the Aberdeen Group. "Because if it can't, it can become a sinkhole. Imagine trying to capture all the knowledge within IBM before turning the system on."

Xerox has focused on implementing knowledge-management practices in its various operations, such as sales and service, before attempting to build links between those local initiatives. "We're going slow in trying to determine what's common across all these communities," Holtshouse says.

Pillsbury Co.'s Tech-Know-Bank, which began in its research and development department in 1997, is a successful local knowledge-management initiative. It's based on a Lotus Notes intranet that researchers use to exchange ideas and share documents. Because the system has helped the Minneapolis packaged-food company get new products to market more quickly, studies are under way to expand it throughout the enterprise.

Others are more passionate in taking the enterprise view. "We believe knowledge management is absolutely not at the departmental or functional level," says Scient's Kalish. "To be successful, you have to encompass the largest number of knowledge assets and leverage them at the enterprise level."

But Kalish acknowledges that might be easier for a new company built from the ground up on knowledge-sharing principles. For older companies with an entrenched culture and long-established lines of communications, the task is far more difficult. "Legacy companies may want to do this but can't," he says.

One company tackling that issue is GM. Although the automaker has launched knowledge-management efforts within "communities of action" (that is, communities of interest), top executives worried the efforts were too fragmented, says Jim Noble, GM's global head of IT strategy. "So we've decided to go top-down," he says. Earlier this year, company president G. Richard Wagoner organized GM's knowledge-sharing initiatives around the company's 13 processes (including design, manufacturing, IT, human resources, and sales and service) with the board-level directors who oversee those areas responsible for knowledge-sharing programs around the world.

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