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?

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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.

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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.”

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The most expensive part of a project is the mistakes

In any project, the most expensive item is the mistakes. Use KM, modularisation and standardisation to keep mistakes to the minimum.

Arches by Paul Ebbo
Arches, a photo by Paul Ebbo on Flickr.

The title of this blog post comes from a quote by the author Ken Follet in his book “The Pillars of the Earth”.

Follet’s book is a novel set against the background of cathedral-building in the Middle Ages, when cathedrals were the mega-projects of the time. The original quote, attributed to the fictional master-builder, is “The most expensive part of a building is the mistakes”. The cathedral builders knew that any mistake would be massively costly in terms of time, labour and materials, and took great precautions to avoid error.

These precautions included using a modular design, where every bay in the cathedral was square, and each arch was identical. This allowed the design and build process to be perfected on the first bay and arches, and then re-used throughout the whole building project. Building components such as the falsework arches and the templates for the stones could be perfected once and re-applied a hundred times.

The same principle can be applied in other projects, including today’s megaprojects. This blog has already argued for a combination of modularisation, standardisation and Knowledge Management as a way of reducing project mistakes to a minimum, and re-using designs and knowledge throughout. Use KM to perfect your approach on the first use of any module, through “learning while doing“, so the knowledge can be safely re-used thereafter.

If your senior managers are still not convinced of the value of Knowledge Management, help them to see that the most expensive part of a project is the mistakes, and that effective “learning while doing” combined with a modular approach can reduce those mistakes to a minimum.

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A simple picture to link KM and continuous improvement

Knowledge Management is the discipline that drives continuous improvement. Here is a diagram that makes this clear

We are all familiar with the link between Knowledge and continuous improvement in our personal lives, as demonstrated by the familiar saying “Practice Makes Perfect”. The more we do something, the better we become. The more experience we have, the higher our performance.

This can also be true for Organisations, provided we apply KM. Organisations can also find that Practice Makes Perfect, and that the more experience they have the higher their performance.

The diagram here shows how – feel free to use with acknowledgement.

The two crucial elements are as follows.

1) There needs to be a learning loop in operation. Knowledge must be applied to activity and to problems, and must be reviewed and gained from activity, problems and experience. The challenges for an organisation are two-fold – firstly finding a way to gain knowledge from experience (through effective lessons capture for example), and secondly being able to find the knowledge from the past (practices like Peer Assist help here). This is one elements of Knowledge Management already. 

2) The second element is to embed new knowledge into processes, procedures and structures. This is represented by the blue wedge in the diagram marked KM. Without this embedding step, the new knowledge is lost over time as human memory fades, or as lessons become buried within lessons databases, and performance slips back down the hill. The embedding KM wedge makes sure that performance gains are maintained (through the use of Lessons Management Software for example).

This combination of the KM components of learning loop and embedding means that

  • the more experience an organisation has, the more it learns
  • the more it learns, the more it improves its knowledge base
  • the more it improves its knowledge base, the more it improves its processes, procedures and structures
  •  the more it improves its processes, procedures and structures, the more it improves performance.

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How KM gives benchmarking a purpose

KM can add purpose to internal benchmarking, by using it to drive knowledge sharing

Image from wikimedia commons

Many commercial organisations track internal KPIs.  They publish league tables of the different departments, and differentiate the high performers, and the poor performers.

But Why? What’s the point? Surely not just to shame the poor performers, and make the high performers feel smug?

The answer is that by identifying the poor performers, you can also identify what each area of the business needs to focus on, and can give them a measure of how much they could (and need to) improve.

But they won’t make the improvement, if they don’t know how.

Benchmarking on its own is just a labelling exercise. It tells the departments where they need to improve, but it doesn’t help them learn how to improve.

This brings us to the second purpose of benchmark, which is to map out the knowledge transfer that needs to happen within the organisation.

Benchmarking shows where performance of a team or unit is weak compared to other teams or units, and therefore need to learn. It also shows which other teams or units are stronger performers, and so can be sources of knowledge. The strong performers can help the weaker performers, and benchmarking identifies which are which.

Managers can also use benchmarking to set targets and drive the learning –

“the factory in Poland uses 20% less energy than you do – I want you learn from them, and close the gap halfway by year end”.  

“Slough uses 80% of the packaging that you do – learn from them, and close the gap halfway by year end”.

In all of this, Knowledge Management is the enabler.

Target setting creates the driver for knowledge sharing, while measurement and benchmarking define the suppliers of and customers for knowledge. Knowledge Management closes the gap, enabling the production units to learn from Slovenia, from Slough, from Syracuse. The mechanism of learning may be by site learning visits, by Peer Assist, by creating Knowledge Assets or training courses, or through the operation of Communities of Practice. The poor performers will improve, and also the good performers learn a thing or two as well.

Link your internal benchmarking with a Knowledge Management campaign, and you can improve performance across the board.

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How to get KM traction with senior managers

Struggling to get traction with senior managers for your Knowledge Management initiative? That’s partly because they don’t know how much the organisation’s knowledge is worth.

Ten years ago, my first ever post on this blog suggested that knowledge management is “managing as if knowledge matters”. Often many senior managers do not manage in this way, because they don’t know how much knowledge matters to their organisation. Or they sort of know, but haven’t worked through the numbers.

Knowledge is a company asset, like your staff, your money, your customers, your brand. It is one of your more valuable assets too, and yet it remains all too often, unmanaged. 

Your organisation has almost certainly implemented financial management, people management, customer relationship management, brand management, quality management because they know all these things matter. So surely it makes sound business sense to implement knowledge management too; to derive maximum business benefit from the invisible asset which is the operational knowledge held in the heads of your employees.

So why don’t they support you?

Because they don’t know how much their knowledge is worth – how much it matters.

And why don’t they know? Probably because you have not told them!

So how do you value that knowledge?

  • Use Larry Prusak’s rule of thumb – 60% of the non-capital spend (see here for how he works that out)
  • Think how your organisation would perform if you had no knowledge, and all your staff were straight out of university or training.  The difference between that performance, and your current performance is the value that knowledge brings. There would be loss of production and loss of revenue until you had retrained or replaced the staff.
  • Carry out some rule-of thumb estimate of the current “cost of lost knowledge” – the value that could be gained by better knowledge management. What would it be worth if you could eliminate the spend on defects and problems which are a direct result of poor knowledge management, such as:
    • repeat mistakes (because nothing was learned from the first mistake)
    • wrong decisions, where people did not have the knowledge to make the correct decision (see the Longford refinery story for a really scary example of this
    • failed bids (because there was something you should have known when bidding, but didn’t)
    • duplicate work (because neither party knew the other was doing the work)
    • rework (because people didn’t know what they were supposed to be doing the first time)
    • the cost of non quality?

You will need to do some research to get these figures, but that’s all part of gaining the evidence you need to convince management.

Also look at, and put a value on, the potential loss of Knowledge as people retire.

If senior managers knew the value of your company knowledge, there is no way that they would leave it unmanaged.   For example, one oil-sector drilling organisation recently estimated the value of its knowledge of drilling to be worth half a billion dollars annually. Who would leave a half-billion dollar asset unowned and unmanaged?

So work out the value, and tell them. Show them how much Knowledge matters to the success of their organisation. Make them sit up and take notice.

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How to keep your job as a knowledge manager

If you want to keep your job as a knowledge manager, then ensure you are directly supporting the front line staff. 

Being a Knowledge Manager is a precarious place to be, until KM is fully embedded. Any major organisation change such as a merger or a change in CEO may mean that your budget is suddenly removed and that you are out of a job.

The thought process behind post-merger cuts in KM, or “new broom” cuts from a new CEO, goes like this;

  • We promised cost savings  – what can we cut?
  • We cannot cut the front line operations 
  • We cannot eliminate anything that directly supports the front line, such as procurement, or finance, but we could probably slim them down; combine our procurement and finance departments and make them smaller.
  • We can safely get rid of anything that is 2 steps away from the front line; the teams that work on things that may eventually help the front line, but not directly. That’s KM,  Risk, R&D (in many companies) etc etc.
So KM is cut, because it is seen as only indirectly supporting the front line. It is seen as 2 steps away from where the money is made.
So how do you ensure your survival as a Knowledge Manager?
The answer is simple;
Work directly on business problems and on business issues, introducing the KM tools and techniques in order to solve those issues. Don’t be generic, be specific. Introduce KM one business issue at a time, rather than focusing on generic roll-out of technologies or processes (until the commitment is made, in which case you can be generic).

Find out what knowledge the front line needs, and get it to them.

If for example the front line sales staff need knowledge on how to sell the new product better, then get it to them. Interview the experts, interview the best sales people and find out how they do it, hold a knowledge exchange, build a set of guidelines on product selling, provide it to all sales staff, and when sales number rise, claim some of the credit.

Don’t sit around worrying about building a better taxonomy for example, because “if we have a better taxonomy, then people will file documents better, and if others come looking, they might find them and if they find the documents, they might be useful, and if the documents are useful, sales figures might rise”. That’s too many Ifs; too many steps away from what the business needs.

Provide valuable knowledge to front line staff to help them do their job better. Then when the merger happens, and the axeman comes to call, the business will say “don’t cut KM; we need them to win this contract, deliver this project, or develop this product”.

Stay only one step from the business. Stay relevant. Add Value. Keep your job.

(see my post on “putting a man on the moon” for more explanation)

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One way to decide how much effort to put into KM in your project.

How much of your project spend should be on KM?

image from wikimedia commons

That’s an interesting question, and one way to answer it is to look at the value of the knowledge in proportion to the value of the project itself (please note this argument only really works for projects that deliver a value stream).

Take for example a large construction and engineering project – the first of its kind in a new location. The project will create two things –

  1. An income stream for the owner
  2. Knowledge, which can be used to reduce cost for future projects
Let’s assume some facts for our imaginary project. Let’s assume it’s a big one but not quite a megaproject.
  1. Budget of $500 million
  2. Timescale 2.5 years
  3. Net Present Value (NPV) $1 billion
  4. Work-hour estimate 10 million
  5. 2 similar projects planned
  6. Conservative estimate of the value of the knowledge – $50 million (5% cost saving on 2 follow-on projects of the same size and scope through effective KM and lesson learning)
So if the value of the knowledge is $50 million and the value of the project is $1 billion, then logically you would expect the investment in KM to be in the same ration to the spend on the project – ie 5%. You would expect a total KM spend of $25 million (3% of $500m) producing lessons, guidance and other knowledge for the improvement of the two follow-on projects. 
Now a lot of the work on the main project would  be done by contractors, and you would need to make sure that they also were spending their share on KM.  Its also possible that you could discount the cost or materials, and instead look at time and labour costs.  The project management team itself might be, say 20 people, working 10,000 days over the life of the project. By the same logic, you would want 500 days (or 1 person full time) spent by the project management team on knowledge management. 
In most projects, the team would spend nowhere near this. They might have a one-day lessons learned meeting halfway through the project (1 day for 20 people is 20 workdays) and another one-day meeting at the end (another 20 workdays). That is a massive under-investment of time and resource, given the value of the knowledge. Instead they should spend 5% of their time on KM, or 2 hours a week.
For your organisation,you can do the math. Work out the value of the knowledge vs the value of the projects, and see what investment in KM would  be appropriate. 
It might surprise you – it surely will surprise your management, because in our (Knoco) experience, the vast majority of projects under-resource KM, compared to the value it delivers.

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Quantified KM value story 124

Another example of quantified value delivered from KM – number 124 in a continuing series

image from wikimedia commons
This story comes from the same article from HBR I referenced yesterday, entitled “What managers need to know about social tools“.  It shows some of the value in seeking and sharing knowledge in a networked world. Here’s the story.

“At the insurance company we studied, one employee, Sheila, was asked by her manager to put a hold on her current project and perform an urgent analysis for a new vertical market. She told her manager that the analysis would most likely take two weeks, pushing her current project past the deadline and over budget. The manager was willing to pay that price.

“As Sheila began to dig into the problem, she remembered a series of exchanges on the internal social tool among colleagues in another department about a project they were working on in that same vertical market. With this metaknowledge, she sent them a note asking if they could suggest where to start. They replied that they had completed a market analysis and asked if she would like to see it. Sheila said that when she received the report, “I couldn’t believe it. It was exactly what my boss asked me to do. This just saved me two weeks, and it saved my project over a million dollars. I had no idea they were working on this. Neither did my boss.”

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