Wednesday 3 November 2010

The value of knowledge - Larry Prusak's question

When I was at the KMRussia conference with Larry last week, he asked a question which made me really think hard, and its an interesting question for anyone concerned with KM metrics.

He asked "What percentage of a company's non-capital spend, is spent on knowledge"?

Now I would be thinking in terms of 3% maybe - perhaps the training budget, or perhaps the budget spent on conferences, but Larry suggested that would be quite wrong.

His answer was - 60%

60% of an organisations non-capital spend, is spent on knowledge.

As he said - "When I was at my last job, at the age of 50 they paid me 10 times more than a 30-year old with the same qualifications. What was the residual difference? Knowledge and experience".

Hmmm - now, that's an interesting way to think about it! Take the company wages bill, take away what this bill would be if everyone was paid as a new graduate, and that's the investment in knowledge. After all, if knowledge was not valuable, you could staff the company with smart young graduates at a fraction of the cost. The only reason you don't, is because knowledge is valuable.

And what do most companies do with this knowledge, that they have invested 60% of their non-capital spend on?

Usually they leave it in people's heads, where it can't be seen, can't be accessed easily, where it leaks away until the day it walks away.

Unless, that is, they have bought into the value of KM, as a way of maximising that investment.


Glenn said...

Hi Nick,

This is an excellent post. It dramatically demonstrates the value of knowledge (so often taken for granted or overlooked). Thanks very much. I will probably use this as a thought provoking discussion point at my next KM course.

Kind regards,

Roan Yong said...

Hi Nick,

That's a good question! and a good answer too. I think senior executives are highly paid because (1) they are able to apply what they have learned;
(2) they have the wealth of experience.

Due to the above two points, they are able to make better decisions and innovate. The thing is, the senior executives are busy people and they may not have the time to transfer their knowledge. In addition, they may not be aware of 'operational' knowledge - the knowledge that the lower level staff possess to do their job well.

Nick Milton said...

Agreed Roan - they have knowledge and experience they can apply. Re the knowledge transfer, maybe they would not be so busy if some of that knowledge had been transferred, and maybe transfer would not be so difficult if KM were part of the working culture, and that knowledge had been shared "on the way up", before they became so senior.

The point, however, is that companies spend a vast amount of money on knowledge without realising it, and without managing that valuable asset. Take GM,with their $8.7 billion payroll costs. If Larry is right about 60%, this means that GM knowledge is worth $5 billion a year.

Who, in their right mind, would leave a $5 billion asset unmanaged?

Suresh Nair said...

Quite interesting - I had never thought of it that way. You told it right "spend a vast amount of money on knowledge without realising it". Retaining the old will make sense only when there is a fare amount of knowledge flow to the fresh blood.

I have got yet another thing to point out - the old usually are stubborn and are a hard nut to crack. The young do share the available knowledge liberally to at least make their position strong.

I strongly feel KMers have a bigger role to play in extracting/ capturing or facilitating the knowledge transfer.

Nick Milton said...

"the old usually are stubborn and are a hard nut to crack. The young do share the available knowledge liberally to at least make their position strong"

Suresh, I am not sure I agree with this at all!

There is often a real gap between the old and the young when it comes to sharing knowledge, but I am not sure it comes down to the stubbornness of the old. This is a big enough topic for me to blog on tomorrow - watch this space!

Unknown said...

Great article, a very interesting angle on the value of knowledge. Particularly interesting given the imminent loss of knowledge as baby boomers transition to retirement. Thank you.

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