The Return on Knowledge

Knowledge management has been a buzzword amongst modern day companies for a few years now. However, many companies are still skeptical about investing significant sums of money in a knowledge management system. This is because the return on knowledge management can be difficult to measure. When companies undertake other cost-cutting or business improvement activities, the returns are often immediate and tangible. The problem with knowledge management is that the returns take some time and cannot be easily measured. Most managers seem to agree that knowledge management initiatives seem to have softer impacts on the performance of the firm. For instance, the flow of information becomes more streamlined as well as employees and customers are more satisfied. However, these same managers cannot really attribute a number to the returns they generated thanks to knowledge management. This is the reason why even in the information age, the emphasis on knowledge is minimal.

In this article, we will have a closer look at the nitty-gritty of knowledge management.

Advantages of Knowledge Management Systems

  • Increased Efficiency: Knowledge management systems create an environment wherein the knowledge about the company’s processes are captured within the system as opposed to being tied to certain individuals. The goal of knowledge management is to create a system which can be used to easily up-skill workers in different tasks. This leads to improved efficiency. Although knowledge management may not have a direct impact on the bottom line, the financial impact of the increased efficiency is quite easy to measure. For instance, if the workers of a company are paid an average of $20 per hour, then a reduction of 10 hours per week would mean a weekly savings of $200 and an annual savings of $10400. Once a company can see this number, they can then decide, how much money they are willing to spend given the fact that the benefit will amount up to $10400.
  • Less Turnover: Knowledge management creates more skillful employees who enjoy doing their work. Typically knowledge management activities see a high correlation with reduced attrition. Finding workers, training them as well as making them productive is usually a sizeable expense. If fewer workers have to be recruited and trained every year, then those costs are also being saved by the company. If it is established that knowledge management is responsible for those cost savings, then these savings can also be used to conduct a better cost-benefit analysis.
  • Less Training Time: Knowledge management systems lead to the creation of knowledge assets which make training employees easier. A lot of companies do not have to engage trainers to train their employees. Instead, most of the courses have been created online which can be accessed by the employees at a time of their choosing. Employees move past the learning curve faster and become more productive. Once again, empirical data regarding productivity can be easily sourced. This will help understand the true benefit of a knowledge management process and assign a monetary value to the system.
  • Improved Visibility: Knowledge Management system makes the processes more transparent. One of the pre-requisites of implementing knowledge management systems is that processes must be well documented. Once the processes become visible, improvements can be made to them which ends up bringing about a substantial amount of cost savings.

Disadvantages of Knowledge Management Systems

The above points illustrate the benefits of knowledge management systems. However, there are clearly some drawbacks to the system as well. They have also been listed down.

  • Less Use of The System: Firstly, most companies are never able to fully realize their knowledge management gains. This is because they assume that 100% of the people in the company will start utilizing the newly created knowledge assets. It is true that these assets are more useful and may end up making employees more productive. However, employees are human beings and therefore are creatures of habit. Hence, very few of them actually use knowledge assets. Companies, therefore, need to bring in change management programs, the purpose of which would be to educate the workers about the usefulness of knowledge management systems. Knowledge management is not merely an operational change. Instead, it is a cultural change and therefore must be managed as such.
  • Politically Motivated Projects: Secondly, many times knowledge management projects are not undertaken because they are in the interest of the company. Instead, they are simply undertaken because they have the backing of a certain powerful person in the company. The agenda of these projects is to merely further the career of the person involved. The benefits which the company is likely to derive are secondary and sometimes non-existent. This is the reason why companies are not comfortable investing in knowledge management projects until they see hard numbers regarding the gain that they are likely to make by making these investments.

The bottom line is that investments in knowledge management are imperative. Also, companies know that about half their investments in this area are wasted. The problem is that they do not know which half. This is the reason that a robust mechanism to measure the return on knowledge needs to be developed. This will help further the cause of knowledge management by leaps and bounds.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


Knowldege Management