Measurement practice for knowledge management

Pervaiz K. Ahmed Kwang K. Lim and Mohamed Zairi

1.0 Introduction
As competition intensifies and business gears itself up for the challenges of the twenty-first century, knowledge management has come to occupy centre stage. Undoubtedly there is currently a wellspring of interest in knowledge management. This is evidenced by the increase in the number of books, articles and papers written by practitioners and academics alike on the subject. In parallel, more and more businesses have embarked upon knowledge management (KM) programmes. Such has been the enthusiasm that companies have even created managerial positions such as knowledge managers and knowledge teams. However, the value of KM is difficult to pinpoint and the effectiveness of KM remains as yet to be proven. Evidence of successful ventures normally comes in the form of hard facts and figures, since they are hard to dispute. Unfortunately the difficulty in measuring an elusive a concept as knowledge has led senior management to manage it without actually measuring it. It is the aim of this paper to suggest a framework for measuring and leveraging KM for competitive advantage. The prevailing atmosphere of intense competition, fickle consumers, business globalisation has led to questions about the way in which knowledge is used, applied and leveraged. This has lent impetus to establish clearer understanding and develop better frameworks for the measurement of knowledge, since measurement is a pre-requisite to establishing what impact, if any, knowledge practices have on bottom line business results.

The authors Pervaiz K. Ahmed is a Unilever Lecturer in Innovation, European Centre for TQM, University of Bradford, Bradford, UK. Kwang K. Lim is a Research Assistant, European Centre for TQM, University of Bradford,, Bradford, UK. Mohamed Zairi is SABIC Chair in Bestpractice, European Centre for TQM, University of Bradford, Bradford, UK. Keywords Knowledge based systems, Measurement, Information technology, Skilled workers Abstract Knowledge management (KM) has become part of common vocabulary in academic circles as well as in the business world. Whilst an increasing number of companies have embarked upon knowledge management initiatives, a large proportion of these initiatives remain technically focussed. The problem with this type of focus is that it excludes and neglects the true potential benefits that can be derived from knowledge management. In this paper we present a holistic model of KM which dynamically incorporates both tactical as well as strategic elements. Secondly in this paper we address a very important gap in the field of KM, namely how to measure KM by developing a framework which systematically allows for screening and evaluation. The measurement framework proposed enables leveraging knowledge assets effectively and efficiently. Without a holistic perspective which captures all the key elements and dimensions, KM initiatives will create marginal gains at best and failure at worst. Electronic access The current issue and full text archive of this journal is available at http://www.emerald-library.com

2.0 What is knowledge?

Before moving onto the issue of managing and measuring knowledge it is necessary to clarify what we understand by the term knowledge. Knowledge stems from data. Data serves as the essential nucleus, that when combined yields meaningful information. It is this combination which makes information (Lynn, 1998). However, knowledge exists at a higher order than information. For example, the information on how to dance contained in the step-movements goes only so far. It is just information. The knowledge of how to actually dance is held within a person, after

Journal of Workplace Learning: Employee Counselling Today Volume 11 . Number 8 . 1999 . pp. 304311 # MCB University Press . ISSN 1366-5626

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Journal of Workplace Learning: Employee Counselling Today Volume 11 . Number 8 . 1999 . 304311

he/she perfects the skills of balance, poise and movement simultaneously. These skills often cannot be transferred artificially and require a rather hands on approach if they are ever to be passed to another individual. In recognition of this Hubert (1996) defines two types of knowledge: tacit and explicit: . Explicit knowledge is the knowledge that can be easily captured artificially through say manuals, standard operations and then shared with others either through thought courses or through books for selfreading. In an organization, tangible knowledge takes the form of job procedures as well as the company's philosophy and strategy. . Tacit knowledge is the skills and ``knowhow'' we have inside each of us that cannot be easily shared. ``Know-how'' in the corporate world is often just as important as ``know-who'' which can hold a competitive advantage over competitors. However this is often overlooked especially during down sizing exercises, and by then it is too late.

3.0 Why measure?

In order for companies to achieve goals they have to measure. Measurement is the basis through which it is possible to control, evaluate and improve processes. As the following quote highlights:
When you can measure what you are speaking about and express it in numbers, you know something about it. (Otherwise) your knowledge is a meagre and unsatisfactory kind; it may be the beginning of knowledge but you have scarcely in thought advanced to the stage of science (Lord Kelvin, 1824-1904, quoted in Heim and Compton, 1992, p. 1).

This point is also emphasised by the Foundation of Manufacturing Committee of the National Academy of Engineering, which highlight that:
World Class Manufacturers recognise the importance of metrics in helping to define the goals and performance expectations for the organisation. They adopt or develop appropriate metrics to interpret and describe quantitatively the criteria used to measure the effectiveness of the manufacturing system and its many interrelated components (quoted in Heim and Compton, 1992, p. 6).

3.1 The measurement conundrum The complex nature of measurement has resulted in a plethora of definitions and has prompted the view that it is ``a mystery... complex, frustrating, difficult, challenging, important, abused and misused'' (Sink, 1991). Practitioners, including strategists, accountants, psychologists, human resource managers each have their own definition of measurement. Each requires application either for internal reporting, such as individual performance appraisals, or for external reporting, such as financial accounting ratios. The issue is further complicated by the notion that performance measures may be either individual or organisation wide, and so it is hardly surprising that different definitions exist. One simple definition that largely overcomes the above problems is defining measurement as the systematic assignment of numbers to entities. This definition can be universally applied to hold meaning for the requirements of various stakeholder groups. Zairi (1994) suggests the function of measurement is to develop a method for generating a class of information that will be useful in a wide variety of problems and situations. This functionality is important as many performance measures are capable of information generation but unless they are useful they are meaningless. Some authors stress the importance of considering performance measurement as ``the process of determining how successful organisations or individuals have been in attaining their objectives'' (Evangelidis, 1983). This process approach to measurement recognises the existence and importance of inputs and outputs in development of the performance measurement system. In the context of individual performance, performance measurement provides the organisation with a ``device through which to focus and enunciate accountability'' (Sharman, 1993) and ``an objective, impersonal basis for performance evaluation'' (Sloma, 1980). Many authors have defined measurement in terms of the attributes of performance ``What is measured is rarely performance itself but some specific attribute relating to the performance'' (Euske, 1984). It is often the desired behavioural attributes that are the focus for measurement and they provide feedback on activities that motivate behaviour leading to continuous improvement in

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customer satisfaction, flexibility and productivity (Lynch and Cross, 1991). 3.2 Measuring performance Performance measures have been defined as the ``characteristics of outputs that are identified for purposes of evaluation'' (Euske, 1984) while others have defined them as a ``tool'' to compare actual results with a pre set target and to measure the extent of any deviation (Fortuin, 1988). It has also been suggested that performance measures ``reflect the contribution of each team or process to the organisation's goal'' (Turney, 1993). Juran applied a TQM focused definition by stating that it is ``a defined amount of some quality feature that permits evaluation of that feature in numbers'' (Juran, 1992). Clearly, to measure all the characteristics of an output would be impractical and undesirable, therefore it is the ``vital signs which quantify how well activities within a process or the outputs of a process achieve a specified goal'' which are the measures selected (Hronec, 1993). Good performance measures should have a range of hierarchical levels corporate, business and functional (Hax and Majluf, 1991) dependent on the output and ``customer'' being considered. The line manager, process manager, general manager, customer and shareholder each has different requirements and an integrated set of performance measures should take account of these factors. At an individual level the performance measures ``are important causal factors related to managerial and employee behaviour'' (Hendricks, 1994). Performance measures should therefore ``communicate how an activity is meeting the needs of internal or external customers'' (Turney, 1992) and reflect the contribution of each team or process to the organisations' goals. 3.2.1 Stages in measurement Ghalayini and Noble (1996) propose that measurement has undergone phases in development. Three stages can be discerned (see Figure 1). The first phase, which is deemed to have started in the 1980s, focussed heavily on financial measures such as profits, ROI, and productivity. Within this system measures are based on the traditional system of management accounting. Unfortunately, this perspective is handicapped by a number of shortcomings (summarised in Figure 1).

These problems fuelled the development of non-financial measures, as exemplified by the second stage of development. The second stage of measurement is characterised by nonfinancial measures. Characteristically these are: . measures that are related to manufacturing strategy, and are primarily nonfinancial measures such as those related to operational matters that facilitate decision making for managers and workers; . foster improvement rather than just monitor performance; . change with the dynamics of the market place. Finally, the third stage is characterised by integrated use of financial and non-financial measures. These integrated systems examine performance from multiple angles and examine the trade-offs openly in an attempt to guard against sub-optimisation. 3.2.2 Measurement systems Many companies have embarked on programmes of knowledge management. Unfortunately after investing huge amounts of money and time they have started to wonder whether the effort has been worthwhile. The reason for the disenchantment being that they have little or no understanding of the value being derived from their efforts. The vacuum has arisen because they have failed to put in place a tracking system to measure progress. This enforces the case for measurement. To reiterate, measurement is important: . because you cannot manage what you cannot measure; . to determine what to pay attention to and improve; . to provide a scoreboard for people to monitor their own performance levels; . to give an indication of the cost of poor implementation; . to give a standard for making comparisons; . to help efforts comply with business objectives. Generally organisational environments are committed to continuous improvement but ``traditional summary measures of performance are generally harmful and incompatible with improvement measures'' (Zairi, 1992). Performance measures need to

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Journal of Workplace Learning: Employee Counselling Today Volume 11 . Number 8 . 1999 . 304311

Figure 1 Evolution in measurement approaches

promote and encourage the right behaviours within an organisation, i.e. those behaviours that assist the organisation in achieving its goals. They need to reflect a positive image that encourages involvement and ownership within a non-threatening environment if it is to succeed in the development of a continuous improvement ethos. Accordingly, characteristics of a good knowledge measurement system are: . performance is reflected at various levels of organisational systems. It is measured at the strategic, tactical and operational levels; . performance measurement is a distributed activity reflecting various levels of ownership and control; . performance measurement reflects a blend of measures for individual tasks/ activities to manage processes; . performance measurement highlights opportunities for improvement in all areas with leverage points.

Often measurement of soft aspects is neglected. However as experience appears to suggest it is often the case that in developing the soft aspects of measurement that high performance in the hard measures follows on naturally. Therefore a holistic approach to measurement is required, one which includes both hard and soft measures. Traditional performance measures have focused on outputs, whereas there is a need to look towards the enablers that lead to the production of results. Enablers can be multifaceted and include elements such as leadership, people, systems, strategy, communication, etc. It is from these enablers that improvement benefits flow. Unfortunately whilst managers understand the concepts and the need for measurement many organisations fail to develop performance measurement systems to support their development due to: . failure to operationally define performance; . failure to relate performance to the process;

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. .

. .

. . .

failure to define the boundaries of the process; misunderstood or misused measures; failure to distinguish between control and improving measures; measuring the wrong things; misunderstanding/misuse of information by managers; fear of distorting performance priorities; fear of exposing poor performance; perceived reduction in autonomy.

Clearly the purpose for measuring is to help monitor the value of KM initiatives and to provide a link to the key performance indicators. This however is largely dependent on the purpose of the measurements. If the results are for policing reasons, then they work against the principles of capturing, sharing and learning within the organization. In essence before we look at the measures needed, we have to answer two basic questions: (1) What is the purpose of measuring? (2) Who are the results for? In today's competitive environment organisations compete on such things as opportunity recognition, learning speed, innovation, cycle time, quality, flexibility, reliability and responsiveness. Financially orientated systems are out-dated and rule bound for a business environment where competitive success is often based on how managers and workers think about their business and how they invest their time and resources. Such environments demand effective measurement systems. Effective measurement systems are ones which are balanced, integrated and designed to highlight the firm's critical inputs, outputs and process variables (Eccles, 1991).

methodology. The model utilises a Deming type PDCA (Plan-Do-Check-Act) cycle. We explain below what each of these of these terms connotes with respect to managing knowledge: (1) Capturing or creating knowledge (plan). A variety of knowledge repositories offer ways to capture knowledge from external sources (competitive intelligence, vendor comparisons and analyses); structured internal sources (marketing reports, customer profiles) and unstructured internal sources (meeting minutes, lessons learnt). (2) Sharing knowledge (do). Using electronic as well as hard copies as a communication tool, as well as through informal or formal discussion groups to aid sharing of knowledge. (3) Measuring the effects (check). Using outcome measures to track the success of the above activities. This will be described in more detail in the following section. (4) Learning and improving (act). Hinging on the TQM philosophy of continuous improvement, the measures above will lead the organization towards further efforts to better the ``scores''. In order to operationalise the model it is necessary to define the key areas that an organisation must direct attention so as to capture all aspects for effective knowledge management. These key elements are captured by our proposed COST model (Figure 2), which is elaborated next. In essence there are four perspectives to look at: Customer: what can we learn from our customers? How can we learn from our customers? How can we become effective in learning from our customers? Organization: What are the key skills needed to make the business a success? Who has these skills? How are these skills harnessed, and shared? How are we doing compared to other organizations?
Figure 2 Cost model

4.0 A measurement model for knowledge

Businesses are increasingly concerned with knowledge and managing the knowledge that they have within their organization. On the basis of the theoretical insights and understanding of the challenges facing companies worldwide, we posit a model to facilitate monitoring and tracking of progress so as to allow leveraging of positive effects from managing knowledge. We propose a model founded upon a continuous improvement

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Journal of Workplace Learning: Employee Counselling Today Volume 11 . Number 8 . 1999 . 304311

Suppliers: how are our supplier links? Does the organization obtain an optimum quality, cost and delivery service from the suppliers? Does the organization conduct supplier quality programs? Technology: how many computer terminals (which are hooked up for information transfer) are available per employee? And are these links being used effectively within the customer-organization-supplier? The COST model forces practitioners to think about the links between the working functions of an organization. It also puts the technological perspective in its proper place, namely that it is only an enabler to organize and disseminate information. An example of this link is the use of computers by Federal Express Corp. who allow customers to track their parcels on-line anywhere in the world, as they are being transported. This service demonstrates the importance of technology, as a link to all three core elements of the above model. 4.1 A measurement matrix for knowledge Combining the COST model and the four steps for KM, we obtain the matrix outlined in Figure 3. This matrix helps in obtaining a deeper understanding of how KM affects the organization as a whole and it also prompts practitioners to look at all the various aspects of implementing KM. It forces the practitioner to consider all factors, ``soft'' as well as ``hard'' factors and it also forces managers to link KM to the overall organization's policy and strategy. It also allows managers to list out the important functions that support knowledge management and to prioritize them. The suggested measures are by no means complete, but we list them as a catalyst for mangers to think of other measures that are suited to their organization's current environment.
Figure 3 Matrix structure

4.1.1 Customer matrix Customer measurements have been suggested to include market share, number of customers and annual sales/customer (Edvinsson and Malone, 1997). These are some measures of intellectual capital and aids in managing knowledge. By comparing horizontally across the matrix, the user can be prompted to think of further measures that would indicate the success or failure of KM activities. These could include: . customer satisfaction; . customer retention; . customer relations. Some of these measures are based on outcomes, as mentioned earlier, and some are just based on the actual numbers. Measures such as, the number of repeat customers, can be in the form of just number of people and may not necessarily have a monetary value attached to it. 4.1.2 Organization matrix The organizational matrix involves looking at the humans of the organization. Professor Hirotaka Takeuchi of the Harvard Business School (speaking at the First Annual UC Berkeley Forum on Knowledge and The Firm) states, ``The natural place for knowledge to reside is in the individual. The important question is how to convert individual knowledge to organizational knowledge. The Japanese view is to give people a process to create new knowledge''. The Japanese have long viewed knowledge to be an integral part of their work, and hence have been using quality circles (QCC) and job rotation as part of their knowledge programme. Hence measures could include; number of workers participating in QCC and number of workers rotated. Together with these we can utilize other measures that look at the cultural aspect of behaviours and attitudes that support the environment of trust and collaboration. The Japanese as mentioned earlier have a structure laid out in the form of quality initiatives which have long been part of their organizational make-up, but this is relatively new in other western cultures. Hence a measure to ensure knowledge is being captured and shared effectively is much needed. 4.1.3 Supplier matrix Suppliers are often mistreated in current working environments. It is of late that

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supplier partnerships have come into light and been acknowledged to be an integral part of the success of an organization. The suppliers' knowledge is of vital importance to an organization. For example, a supplier's knowledge of raw materials can be passed on to the customer to allow for a more informed decision to be made. This is evident in the workings of Japanese manufacturing organizations that often hold meetings with their suppliers to exchange views and to discuss new projects. This is part of the knowledge exchange that very much forms the foundation of knowledge management. Measures which maybe useful include: . supplier meetings; . supplier development programmes; . benchmarking activities between suppliers. 4.1.4 Technology matrix This matrix effectively defines the type of system a company needs to obtain in order to improve their management of knowledge. Capture defines the needs of the organization as in how many people will be linked into the system and in what form will the information be stored. Information captured will then have to be shared and this determines the interaction media to be used. As for the effectiveness, decisions which are made based on the knowledge transmitted using technology need to be calculated, either in the form of outcomes, such as the contribution to the profit levels of the business, or in more direct forms such as the number of times the knowledge base was accessed to supplement the decision making process. Lastly there is a need to check whether improvements are being made through use of technology. For instance, is there an overload of information? Is all of it relevant? How can we ``police'' the information posted out, in terms of the accuracy of information?

5.0 Conclusion
Measuring knowledge is vital for companies to ensure that they are achieving their goals. Measurement provides an important mechanism to evaluate, control and improve upon existing performance. Measurement creates the basis for comparing performance between different organisations, different processes, different teams and individuals.

The dynamics of today's market place require effective knowledge management to assist managers in making decisions and taking actions, which enable organisational survival and prosperity. In order to develop an effective knowledge measurement system it is necessary to go beyond traditional financial measures. Traditional measures need to be supplemented with non-financial measures to give a much fuller picture and a more relevant management progress tracking system. A more holistic approach to knowledge measurement asks what is it that drives the top line performance measures? Is it the process, people, leadership, resource utilisation etc. and if so are these performance measures included? Investment in knowledge, process improvement and people development leads to pay-backs and impacts on financial performance but does so in future accounting periods. This creates a need for interim performance measures to check progress and guide actions. Many measurement systems fail to be effective because they are disparate, often measuring activities that are of a local or individual interest to a manager rather than a key activity for the business. Measurement requires a medium- to long-term commitment from senior management and all staff, and often it offers potentially little impact on financial performance in the short term. The drivers which underpin the knowledge performance measures such as teamwork, learning, communication, knowledge processes, tools and techniques etc. require nonfinancial performance measures to ensure that progress is being made and where and when to take corrective actions. A linkage between strategy, actions and measures is essential and unless companies adapt their measures and measurement systems to facilitate compatible introduction implementation will fail to reap the expected benefits (Dixon et al., 1990). Critically, adoption of the wrong measures and wrong measurement system can severely circumvent performance. Thus care and diligence must be excercised in the development of a measurement system for programmes such as knowledge management, since dysfunctional penalties of an inappropriate system can be extremely heavy. Lastly for practitioners who still doubt the importance of KM, we list several benefits of KM as a strategy:

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reduces the loss of intellectual capital from employees who leave; reduces the cost of development of a new product/service; increases the productivity of workers by making knowledge accessible to all employees; therefore increasing employee satisfaction.

However the most enduring benefit is that the more abstract the knowledge element the more difficult it is to imitate (Lippman and Rumelt, 1982). Hence by managing it well, a company will have invested in a corporate culture which encourages customers, employees and suppliers alike to embody their skills in a pool of knowledge which can be utilized to deliver the perfect product and services which provide for a truly delighted customer experience. It is in this light that we propose the KM model and framework. We believe that the framework helps to facilitate knowledge management by making transparent through measurement: . the status of knowledge management effort; . the areas that need further attention and improvement; . definition of the types of actions that can be taken to realise improvement.

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