Quantified Knowledge Management success story number 128; €136 million in one year at Continental

Here is another in our series of success stories quantified benefits, this time from Continental. 

The Tyre manufacturer Continental has a number of Knowledge Management initiatives under way, including

  • The collaboration platform ConNext, which links wikis, blogs, and community forums.
  • More than 16,000 communities, some of which are more like small working groups, while others have several thousand members.
  • Lesson learning
  • The innovation platform Contivation, for collaborative development of new ideas.
Innovation is one of Continental’s three value creation streams, and gets a lot of attention. As their knowledge management page reports regarding the use of Contivation,

Some 420,000 suggestions were received in 2017, for example, of which more than 360,000 were implemented. This not only resulted in savings of more than €136 million, but is also a testament to the active engagement of our employees with the company and its values.

One of the things to note here is the rate of implementation – nearly 86%. This is at the high end of implementation rates for schemes such as this.

View Original Source (nickmilton.com) Here.

What is the limit to KM’s value delivery?

Why is knowledge management not infinitely valuable?  It’s because the value it delivers cannot exceed the “Cost of not-knowing”

See text for explanation
I was asked a question a few years back by someone challenging stories of KM value. “If Shell could deliver $200m per year through KM” he asked – “why not spend twice as much on KM and deliver $400 million?”

The answer is that there is no linear relationship between KM spend and value delivery, because KM delivers value through removing inefficiencies. Specifically the value of KM comes through reducing “the cost of not-knowing“, which is a finite quantity for any organisation. This represents the maximum value KM can deliver.

KM is like Lean – it adds value by eliminating waste; the waste time and money that comes through not knowing, and the results of the bad decisions made through absence of knowledge that should have been available.

The “cost of not knowing” manifests itself in many ways;

  • People using inefficient approaches, when efficient approaches are available elsewhere or have been used before;
  • People repeating studies which others have already completed;
  • People reinventing approaches which have already been perfected elsewhere or in the past;
  • People making mistakes, when the knowledge to avoid those mistakes already exists (or used to exist, but has been lost);
  • People attempting things by means which others have already proven impossible;
  • People being unduly conservative, when others have already discovered how much you can push the envelope.

The cost of not knowing is a finite number, and is the difference between the current cost of operations and the cost of operations assuming everyone had access to the best knowledge. Defining or estimating your own “cost of not knowing” is an important step for any organisation, and most companies are surprised by how large this cost is, and how much value KM can deliver.

Expenditure in KM can never release more value than the cost of not knowing, and the cost of not knowing can probably never be fully eliminated, as shown in the picture here. The relationship between the investment and the value will be something like the red line in the figure. More and more KM spend will get you closer and closer to eliminating this cost, but I suspect you never remove it completely. Increased investment results in decreasing ROI.  If your company has a required ROI for its investments, then the ideal KM spend is when the investment is such that the delivered value just meets this ROI.

The picture of course is an academic exercise – the cost of not knowing, and the ROI from KM, are both poorly defined figures which cannot be estimated on the scale of an organisation beyond an order of magnitude.

Shell’s $5m investment in KM reduces the cost of not knowing by $200m, which may be a substantial proportion of their Cost of not-knowing. They would not add another $200m by spending another $5m, and it may be that their $5m spend is the optimal balance. However the recent Shell job advertisement targeting $1 billion in value, suggests there is a lot more value still to come.

The value of KM is not infinite. It cannot exceed the “Cost of not-knowing”. However that value can still be very large, and worthy of major investment. 

View Original Source (nickmilton.com) Here.

You can’t do KM without a budget

One of my Knoco colleagues was in a KM workshop a while ago with a client, and raised the issue of the KM Budget. One of the people in the room said “What? Does Knowledge Management need a budget?” 

My colleague was taken aback, but was able to point out that Yes, KM needs a budget, all KM programs have a budget, the budget will be substantial, but the rate of return will be even greater.

If there is anyone else still out there who still doesn’t realise that KM needs a budget, here is an introduction.

Why do you need a KM budget?

Because to deliver Knowledge Management requires not only new technology, new processes, new roles and new governance, but also a program of cultural change. A delivery person or team is needed to run the implementation project, they need to be paid and (in larger organisations) to be able to travel to the different offices, and therefore the project needs a budget. You can get a certain amount of the way in KM through goodwill and people volunteering their time, but this is not sustainable. And ISO 30401:2018, the KM standard, requires that Top Management shall be responsible, among other things, for ensuring that the resources needed for the knowledge management framework are available. This includes a budget.

What are the main costs the budget will cover?

Some of the main expediture items will be as follows ;

  • Salaries of the KM team, with their main tasks being 
    • Researching and drafting the KM framework, strategy and implementation plan
    • Developing the change management and communication strategy
    • Delivering early quick wins
    • Working with the business to deliver pilot projects
    • Rolling out the KM framework
  • Travel budget (if this is a global implementation)
  • Purchase of technologies (this should be no more than a quarter of the budget at most)
  • Service of an experienced trusted consultant

How big should the budget be?

Participants in our global Knowledge Management surveys were asked to specify the scale of their annual KM budget. 118 participants (20%) did not know this, and 51 preferred not to quote a figure. The mean KM budget of the remainder of the respondents was $785,000.

Obviously the budget will be bigger the bigger the company, with an average “budget per staff member” of $3000 (although there are economies of scale for large organisations).  The budget also increases as the KM implementation continues, as shown in the figure below.

The graph will give you benchmark figures, but you will need to work out your budget yourself, from the bottom up.

How long will you need a budget for?

The KM budget will be needed for as long as KM is important and is delivering value, which will be for as long as Knowledge is important to your organisation. Even when implementation is over you will need an ongoing “operational budget” for KM, to pay for a team to manage, monitor, and support the application of the KM Framework.

How do you justify the budget?

You do this by knowing what value KM will deliver, and by estimating the “size of the prize.” Then, once KM is under way, you demonstrate the value.

Yes, KM needs a budget, and for large organisations this will be  large budget, but KM should more than pay its way.

View Original Source (nickmilton.com) Here.

How to estimate the size of the KM prize

I blogged last week about the importance of knowing the value KM will deliver. But how do you do this?

As I said in last week’s post; if you understand the value that Knowledge Management can bring, then you understand how much you can justify investing. The larger the scale of the KM prize, the larger the KM budget can be in order to deliver that value.

We know from our Knowledge Management survey that the average KM budget is $950k and the average delivered value is $93 million, but how can you estimate in advance what value Knowledge Management may deliver for you?

Generally KM delivers value by reducing waste, or through eliminating the cost of lost knowledge, and this can be done in a number of ways, as discussed below.

Reduction of the learning curve

Knowledge management can add value through reducing or eliminating learning curves, which equates to removing the cost of re-learning. If you have historic data on learning curves, then you can use this to estimate the value of eliminating that curve. Typically a learning curve represents 10% to 15% of a project expenditure, and with large projects, this can be a large prize.  In other cases, the value comes through learning to do things more quickly – developing new products, for example.

Learning curves apply to any repeat activity; for example setting up a branch office, hiring new staff, conducting an assessment.  You generally eliminate learning curves through effective lesson-learning, and through systematic project pre-learning.

Exchange of effective practice

An alternative value-adding mechanism is the transfer of effective practices across multiple sites, which equates to removing the cost of not knowing, or not sharing, better practices.

Imagine you are working in a business with multiple operating or manufacturing sites. Operations cost, and manufacturing cost, will vary from site to site, Knowledge Management gives you the opportunity to reduce these costs, by sharing learnings and good practice from low cost sites, to improve the performance of high cost sites. In order to estimate the size of the prize, you need

  • A good set of benchmark data on current operational costs, broken down as far as possible into the different factors 
  • An estimate of how effective KM could be in normalising those costs 
  • A desire across the business to improve. The high cost sites need to want to improve. The low cost sites need to want to help them. 

As an example, in the 90s we worked with the refineries in BP to help reduce the costs of Planned Shutdowns. Historical data showed that if all refineries could reach the level of top quartile, there was a prize of £30m available. The business estimated that enhanced KM (i.e. an improvement on the existing level of knowledge sharing) could deliver $5m of this, while no knowledge sharing could lose $10m. This return more than justified an investment of $230,000 in a community of practice, an online knowledge base, and a series of Retrospects and Peer Assists.

More effective innovation

Many organisations struggle with effective innovation, especially those which run a reactive innovation system which waits for individuals to submit ideas which are then passed through an ideas funnel. Bringing in a structured creative innovation process such as Deep Dive is a big investment (a full innovation process make take a team of 6 to 10 for 3 months) but can solve really big business problems in startling ways. The size of the prize here is the value of the business solution, whether it is a new class of product, or an innovative solution to a massive business issue. It is delivered through removing the cost not ineffective innovation.

Ineffective provision of Knowledge to Customers

The most effective and efficient way of getting knowledge top customers is to provide that knowledge to the customer online, making sure it is accurate, findable and easily usable. If this is not the case, and the customer needs to call your support centre, or call out an engineer, than this is additional cost which KM can eliminate. There will also be a cost associated with the loss of customers disgruntled by their lack of access to knowledge.

Reducing duplication

In any siloed enterprise, there is likely to be duplication of effort, because people do not know what the others are doing (again, the cost of not knowing). As well as delivering large value through the means described above, KM will deliver more modest value through elimination of duplication, as the Communities of Practice begin to discuss what they are doing, and so recognise and eliminate duplication.  To estimate the size of this prize you will need to do a survey across a subset of the organisation in order to estimate what work is currently being duplicated. 

View Original Source (nickmilton.com) Here.

Why it’s important to know the value KM will deliver

Why is it important to understand the business value of Knowledge Management? The answer is a simple one – if you understand the value, you understand how much you can justify investing.

A couple of days ago we discussed KM metrics, including the Impact (or value) metric. But why is this so important? Here is one answer.

Introducing Knowledge Management requires investment. It requires new processes, new technologies, new roles, new governance, and (in particular) investment in an organisation-wide change program. No budget holder will accept that investment if they don’t think there will be value gained in return.

 An illustration of this comes from the Drilling function of an oil company, where a drilling team were planning a campaign on a new field. They studied historical data from learning curves on nearby fields, and worked out that if they could eliminate the learning curve on their new campaign through knowledge management and through access to prior knowledge, this would be worth $100 million in savings.

 They put together an excellent and comprehensive program of learning activities, and employed three full-time learning engineers with Knowledge Management roles to capture and re-use lessons from operations. Almost inevitably, they immediately began to face cost challenge.

How could they justify these extra staff, they were asked, when the whole program was facing cost pressure? As the team leader reported “We were criticized for team size. “Why do you need so many people”? It would have been very easy for our manager to say “you are going to have to conform to the rest of the world out there (and reduce team size) “. However instead, the team leader was able to justify the investment in knowledge management roles and processes, because he understood the scale of the prize. He understood the value of learning and knowledge management. He knew that an investment of 3 extra people was justified if it would deliver a prize of $100 million.

Knowing the Scale of the Prize

Knowledge management programs often struggle to get support and funding because management don’t realise the value of KM. If organisations realised how much value KM can deliver, then KM would be a no-brainer.

 So our advice to clients usually is to form a reliable and justified estimate, as early as you can in your Knowledge Management activity, of the scale of the prize. The prize will come through better decisions, improved process, accelerated or eliminated learning curves, and continually improved performance.  Please note that the scale of the prize from “finding better knowledge and making better decisions” is orders of magnitude greater than the scale of the prize from “finding documents faster”, as discussed here.

Most of the time, the potential value which can be delivered from Knowledge Management is startlingly large.

Then once you and your management understand the scale of that prize, you know how much you can invest to deliver it, and you personally will be better placed to meet challenges to that investment. You will be able to respond, as the drilling team leader did, “We need these three KM roles, because they are busy delivering a $100 million prize”.

View Original Source (nickmilton.com) Here.

Quantified KM value example number 127

In this job advertisement, found on LinkedIn, we find an example of quantified value delivery from KM.

Image from wikimedia commons

The job advertisement, posted a week ago, is for a “KM Manager” for Shell, based in the Hague, who will run KM for Shell’s Projects and Technology business. It contains the following paragraph.

Over the past 6 years, we have built a comprehensive set of structures, processes and applications supported by Working Out Loud behaviors, and implemented this Solution across Shell’s Technical Functions and C&P. This program has touched approximately 43,000 Shell staff in Technical Functions. A total value of over US$480 million has been delivered through application of key practices in Shell’s business activities. Our ambition is to achieve US$ 1 bln by the end of 2020.

Thats a lot of value in 6 years, and an ambitious target!

View Original Source (nickmilton.com) Here.

The Knowledge Management "What’s in it for me"

Knowledge Management will work in an organisation when there is something of value in it for the people involved.

This is what we call the “principle of local value” – the WIIFM for the KM user.

If KM is of local value, it will work, and people will adopt it The more they see and feel value, the more avid users they will become. If the value is only for others, then people will not bother.

The value is greatest when people can see and feel themselves as benefiting from Knowledge Management, for example when they find valuable and useful knowledge using Peer Assists for example or  getting answers from a Community of Practice. Their questions are answered, their problems are solved, they work more easily and with less risk, and they are happy.

Let’s look at where the value for the individual comes from, in knowledge seeking and in knowledge sharing.

Local Value from Knowledge seeking

These benefits for knowledge seeking can come through any of the following means

  • Assistance — if people seek for knowledge, and find useful knowledge easily which they can apply to help them in their work, then this is a very powerful incentive to seek again next time.The knowledge can save them time, save them effort, and help them deliver better results.
  • Answers — if people have questions, then the KM framework should provide answers 
  • Curiosity — some people are much more inclined to look for alternative ideas and new approaches than others. Make sure that the KM system satisfies their curiosity
  • Trust — if people trust the knowledge source, and trust the process of asking for help (in other words, they trust that they will not be ridiculed or criticised for needing to ask) they are more likely to seek for knowledge. 
  • Satisfying management expectation – people are very good at sensing (and doing) what is expected of them, and management can explicitly set the expectation that people will look for knowledge before starting something new. 
  • Peer pressure – people follow the example of others. If they see others successfully seeking knowledge, and being recognised for this, they are more likely to follow suit. 

Local value from Knowledge Sharing

The value of sharing knowledge is less clear, because Knowledge Sharing requires an investment of effort on behalf of others (for example holding a Retrospect, or collecting Lessons for others). Here is some of the value for people in sharing what they know

  • Pride, status and recognition — people are more likely to share knowledge when they are proud of what they have accomplished. They are also more likely to share knowledge if the knowledge “travels with their name on it”.  Nobody likes to contribute knowledge which somebody else will claim credit for. Good behaviours in terms of capturing and sharing knowledge can be recognised through awards, through mentions from senior management, or via articles in internal publications
  • Reciprocity — people are more likely to share knowledge with others when they expect to get knowledge back again at some time in the future (or have already benefited from the knowledge of others). 
  • Friendship and Loyalty — people are more likely to share knowledge when they have built relationships within the community of practice, and feel that the knowledge will be used by people they know, respect and like. 
  • Altruism — let’s face it, some people are just naturally more helpful, and more willing to share what they know, than others. Work with these people in the early stages of implementation. 
  • Satisfying management expectation — management can set the expectation that people will capture and share knowledge after a significant piece of work. 
  • Peer pressure – people follow the example of others. If they see others taking time out to capture and share knowledge, especially from projects that may not have gone well and where there may traditionally have been a reluctance to “wash dirty linen”, they are more likely to follow suit. 

View Original Source (nickmilton.com) Here.

Find out how much difference Knowledge makes to performance

Do you want to know how much difference knowledge makes to performance? Here are some experimental data.

Based on the controlled experiment that we call “Bird Island“, we can tell you that

  • Collecting, discussing and re-using your own team knowledge can make a 40% difference to performance
  • Using knowledge of your current CoP can make an 80% difference to performance
  • Using all available knowledge, including historical knowledge, can make a 220% difference to performance

Let me explain how this works, and where these numbers come from.

In the Bird Island exercise we ask the teams to build a tower, then we measure the height of their tower. We then hold an after action review (AAR) to discuss what they have learned about tower building, and after the AAR we ask them to estimate how much taller they can build, now they have knowledge and experience.

The graph below shows a histogram, or frequency plot, of the percentage increase they recognise. This is somewhere between 0% and 120%, with a mode of 40%. This represents the performance increase a team thinks they could gain, by learning only from themselves.

Then we hold peer assists, where the teams exchange knowledge with the other teams, rather like sharing in a Community of Practice. Now they are sharing knowledge with other teams, instead of just looking at their own learning. Then after the peer assist, we ask them to estimate how tall they could build the tower.

This next graph shows the percentage increase between the first tower and the post-peer assist estimate. Although the mode is still a 40% increase, the mean is now closer to an 80% increase. (The reason why the mode does not shift from 40%, is that the team with the highest tower rarely believes they gain any knowledge from the peer assist. So one team almost always does not improve their estimate. That’s why the frequency distribution in this graph has more than one peak).

Finally we show the teams the current best practice, built from the experience of hundreds of teams over 20 years, and ask them to build the tower again. This gives them access to the current full state of knowledge about tower building, and really gives their performance a boost.

We measure the first tower, built with no knowledge, and we measure the final tower, built with full access to all prior knowledge. The final graph shows the percentage increase between the first and second towers – between a state of no knowledge, and a state of full knowledge. The mean and modal increase they achieve is now in the order of 220% – representing an average trebling of height from the first tower to the second, solely due to the addition of knowledge. They have nothing extra the second time, other than knowledge.

Bird Island is a test of the link between knowledge and performance in a controlled experimental environment, with a simple repeatable task, and with teams that come to the task with no knowledge.

Whether the same performance increases could be made at work, in a more complex environment, I don’t know, and it is sometimes very difficult to measure. However we can certainly see a 67% increase in the speed to drill oil wells, and a 55% increase in the speed to build drilling platforms, so where performance improvements through controlled learning are measurable, they are large.

Therefore the answer has to be – Why not? Why would similar figures not apply at work?

If KM materially impacts performance in the experimental setting why should it not do so in the real world?

View Original Source (nickmilton.com) Here.

Having the time to halve the time

KM is an investment of time to save even more time.

Image from wikimedia commons

Here is an extract from a conversation last week.

Me: Can you give me any examples where the Community of Practice could add value?
Client: At the last meeting we identified one of these – we found one part of the job where everyone does the task differently, sometimes very inefficiently. It’s very junior work, but still, the CoP said “this is a real mess, we have to fix it”.
Me: Did you fix it?
Client: No, it didn’t go anywhere, because everyone is too busy.

Everyone is too busy to take the time to fix a problem that is wasting lots of time. Huh?

This is a typical situation in any organisation where Knowledge Management is seen as an overhead and not an investment. Knowledge Management is a powerful approach to improving the way we do work, and this client was too busy doing the work, to improve the way they worked. Too busy working inefficiently, to improve efficiency.

In the US, they call this “too busy fighting alligators, to drain the swamp”

In BP, we positioned KM as an investment, by urging people “to have the time to halve the time”. In other words, if you invest time in learning, you can more than recoup that investment through the increase in efficiency it brings.

  • For example, a three day Peer Assist may reduce the elapsed time of a project by three months.
  • A 12 day investment in a lesson capture meeting (10 people for a day, plus facilitator, plus write-up) can save 10 months of rework in future projects
  • In Shell they believed that every hour spent on Community of Practice knowledge-sharing saved you 7 hours if you applied the learning you gained

In order to get your company out of this time-trap, you need three things

  1. KM to be seen as an investment and not a cost
  2. A proof-of-concept demonstration that shows this to be true. For example, in BP we had several video stories of people saying “I had a problem, I went to the CoP and asked for help, the advice I received was fantastic and solved my problem instantly”.
  3. Managers who will not accept inefficient working, if there are ways to work more efficiently. Managers who will say “Why on earth did you not fix this?”

That’s how you start to change the mindset from “KM is an added cost” to “KM is the investment that will save me a huge amount of time.

View Original Source (nickmilton.com) Here.

Quantified KM value stories 125 and 126

This post contains two more entries in a long series of examples of quantified value delivery from KM.

The two examples below come from the article “Knowledge management in a steel company : a case study of the Gerdau Group” written in 2009 by Marcelo Kuhn, and both refer to value resulting from exchanges of knowledge in communities of practice. 

“Some good results have been reported and improvements in processes have been obtained based on knowledge sharing. In the Reheating Community, for instance, members from the AZA plant in Chile were unsure about a current procedure and posted a question: “Is it economically favorable to turn off the furnace when there are shutdowns in the production line for short periods of time (less than 8 hours)?” Members
from four different plants in Brazil, Chile and U.S. debated the subject for thirteen days and concluded that the best option was to keep the furnace in operation at a temperature around 13300F. Calculation proved that the fuel consumption to reheat the furnace was larger than the fuel saved. Moreover, previous experiences in some plants showed that constant changes in the internal temperature of the furnace damaged the refractory bricks which are the raw material of the internal walls, reducing wall life by 25% which represent losses of  US$ 25,000 by furnace. In December 2008, Gerdau had fifty Rolling Mills that were operating with shutdowns periods and could take advantage of the suggested strategy”

“Another example comes from the Rolling Community. Workers from the Riograndense plant in Brazil were having problems with the operation of the Laying Head (a machine which forms the wire coils in the Rolling Mill process). They asked for help in the community forum and received answers from members of three other plants. The Agominas plant, also in Brazil, showed how they operated the machine with fewer problems. Workers from Riograndense visited Agominas’ plant in order to find out what was being done differently. After observing a day of operation and maintenance procedures, the workers noticed a difference in the shape of one internal component. This change was implemented in Riograndense’s laying head, leading to a better performance of the equipment. Product quality was improved and the shutdowns in the production line were reduced, generating a gain of US$ 70,000 / year.”

View Original Source (nickmilton.com) Here.