Building the Business Case for Knowledge Management and Innovation Programs
Resources are needed in order to invest in knowledge management and innovation programs. Whether it is discretionary resources to acquire a new system for knowledge discovery or cash to buy gift cards to be used as incentives to promote knowledge sharing among employees, it is important to remember that resources can make, or break, a knowledge management effort. Not all resources are of a monetary nature. Many times, the most valuable resource required is attention. Employee attention to the knowledge management effort (e.g., a new method for codifying knowledge) is also salient for success. To get employee attention, in most cases, you need the attention of senior executives, who give their attention to the projects in which they invest significant resources. So, there is no getting around the fact that securing resources for knowledge management is a critical issue.
Unfortunately, few managers know how to write business cases that attract the necessary resources for their knowledge management and innovation programs.Business cases are strategic artifacts aimed to sell internal and/or external stakeholders on the merits of a project. Upon reading a business case, one should come away with a clear strategic understanding of the project and its value proposition, confidence in the project team, assurance that the budget for the project is reasonable, and awareness that the high-level project plan is sound. Based on my experience, I would suspect that out of every 20 business cases for a knowledge management related effort, about one is funded at the level requested, up to three are funded at 30% or below of what was requested, and the rest are not funded at all!
First, the scarcity problem means that organizations do not have unlimited resources (e.g., capital, or even more intangible resources, like managerial attention), meaning all needs are not going to be met. Recognizing the criticality of the scarcity problem means that when an organization considers a case for investing in knowledge management, it is going to be evaluated against every other case that is asking for resources. Too often, knowledge management business cases do not understand or account for this reality, and go by the wayside.
The second thing to understand is that knowledge management efforts need to show payoffs. In an organizational context, payoffs are compared across projects that are candidates for investments. Business cases that are able to demonstrate payoffs that are worthy of the effort (time, cost, personnel, etc) of the investment, and present convincing arguments on why the payoff will better the organization towards its future objectives, stand a high chance of being funded. Simply claiming a high payoff is not sufficient. The business case presented must be sufficiently evidenced to show that achieving the payoff is reasonable.
From the outset, one must realize that making the case for a knowledge management effort and calculating payoffs is not easy, when compared to making the business case for a new piece of manufacturing equipment, such as new welding machine or a color photocopier. Investing in a piece of new machinery can be directly tied to increases in product quality and/or quantity through multiple metrics (e.g., lower defect rates, finished products per hour, etc). Calculating the payoffs for investments in knowledge management efforts is not as easy, nor is it as direct, and first-order effects are difficult, if not impossible to measure. Knowledge management efforts lead to changes in behaviors, approaches, and methods that, on their own may not have direct bottom-line impacts. However, when these are mapped and traced to organizational processes, the impacts can be measured and articulated. Needless to say, this is often a more time consuming and creative effort than simply measuring direct impacts as in the case of outcomes from a new piece of manufacturing equipment. Equally important is that there is a lag time between when one invests in a knowledge management effort and when one witnesses outcomes that result in payoffs. Accounting for this lag time is not easy, yet it is essential to building an adequate business case.
The third, critical realization that we need to appreciate is the fact that investing in knowledge management is akin to a group as a whole investing in a common effort. Consider the case of investing in initiatives such as the promotion of fair trade practices. Most people agree that increasing the adoption of fair trade practices benefits society. The challenge arises when we ask who wants to take responsibility for investing in these efforts. If taxes were raised to support these efforts, would you be happy? Rational individuals often want others to bear the cost of these common efforts and gladly enjoy the benefits, yet hesitate to initiate responsibility. A similar predicament faces knowledge management efforts. Departments within an organization want their peers’ units to invest in a common effort. Each department might see knowledge management as an effort someone else should put up resources for and hence defers spending its own resources. In some organizations, knowledge management efforts might be viewed as a tax levied on a department’s resources. This tax, is something every department either does not want to pay or wants to pay the lowest possible amount; yet any outcomes from the tax, such as infrastructure (e.g. a new intranet) is of interest to all. Moreover, the departments may get upset if they see the common effort they invest in does not perform up to par. This is akin to how one feels when one drives down a poorly maintained road, knowing that one has paid taxes for its upkeep. Knowledge management is seldom viewed as a profit center in an organization. It is important to remember that building a business case for a knowledge management effort is often similar to trying to build a case for increasing investment in an effort common to the whole organization.
The above three challenges, while severe, are not insurmountable. To learn more about how to build a good business case for knowledge management and innovation programs, please send me an email and stay tuned for my forthcoming article in Business Information Review.
Without a good business case, knowledge management will remain a theoretical, and even an impractical, concept in organizations. Good business cases give individuals a chance to put theory into practice, by providing resources for implementing knowledge management programs, processes, and technologies. Writing good business cases requires time, effort, and practice. Seldom is one born with the ability to write good business cases.
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