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The Value of Knowledge Management 345

All four dimensions are in turn related to a human focus, which is a measure of
the organization ’ s human capital. This model is quite similar to the balanced scorecard
method (BSC) discussed later. The navigator can be thought of as a combination of
Sveiby ’ s (1988) intangible assets monitor with the BSC.
The valuation of IC is receiving much attention in today ’ s literature. However, the
cost of implementing KM techniques is not as clear. McKinsey & Company has an
objective of spending 10 percent of revenues on developing and managing knowledge
( Davenport 1996 ). Keeping with the earlier Intel example, these estimates would place
the cost of managing knowledge within Intel between $595 million and $1.7 billion
in 1997. By not clearly understanding the “ intellectual liabilities, ” or cost of KM, it
remains diffi cult for companies to calculate any balance sheet effects. Buckman Labs
estimates that companies spend 3.5 percent of revenues on KM ( Davenport 1996 ). The
founder of Buckman Labs, Robert Buckman, estimates that the fi rst benefi ts from KM
were seen as an improved speed of new product development ( Angus 2003 ), which
increased to 30 – 35 percent from 13 – 18 percent a year. Some additional examples are
provided here in discussions of Accenture and Chevron (boxes 10.1 and 10.2).
The shift toward knowledge-driven business models has created a strong need for
knowledge management metrics. The literature has only recently begun to explore the
cost of KM, with little empirical data showing true organizational costs ( Harvey and
Lusch 1999 ). The KM measurement process will therefore consist of the following
major steps:
1. Defi ne the business objective(s) addressed by the KM initiative or project.
2. Defi ne are the stakeholders and determine what they need to know.
3. Determine which measurement framework(s) is best to align KM measures with the
business objectives.
4. Modify the framework(s) based on measurements are needed.
5. Decide on a data collection and analysis strategy.
6. Get management to sign off on the measurement strategy.
7. Implement measures and present the results in a form that is most appropriate for
each stakeholder.
Three popular approaches, benchmarking, the balanced scorecard method, and the
house of quality are presented here.

The Benchmarking Method
Benchmarking is the search for industry-wide best practices that lead to superior per-
formance ( Camp 1989 ). It usually consists of a study of similar companies to see how