Return on Knowledge: The New Metric Of Business Success

What is the knowledge-based economy?

If you talk to most people in your organization about how they measure success, chances are one of their answers starts with “RO” and ends with one of three other letters — I, C, or E. That would refer to return on (the RO) investment, capital, or equity. Of these, ROI is probably the most-tossed about, but all three generally reflect the way that global economies emerged.  Notably, the focus was on things and production, not necessarily on people (even though the people built and operated the things).

The issue here is that much of the world has shifted to a more knowledge-based economy, and while these old standbys for evaluation are important — the goal of a public company, after all, is to generate money for its shareholders and thus ROI and ROE is crucial — there needs to be a new construct. Here’s our approach.

Return on Knowledge

It’s called ROK, or return on knowledge. Before you think of some hipster teenage girl tweeting “ROK” from her favorite concert, bear with us for a second. The idea has been around for a while. In Thomas A. Stewart’s book, Intellectual Capital: The New Wealth of Organization, he outlines how organizations can turn the untapped knowledge of an organization into its greatest competitive weapon. Stewart proposes that knowledge — not natural resources, machinery, or financial capital — has become the most important factor in economic life. We believe all this, and we also believe this stat from Coveo — that only 13% of organizations believe their employees have access to collective knowledge.

Admittedly, some of this is a utopia — silos do exist and can’t necessarily be completely removed, and it’s much harder to measure specific returns from knowledge or knowledge management as opposed to specific returns from a piece of equipment or a cash infusion. But the idea is less about specific numbers and more about a general approach: shifting the ideological focus of an organization to thinking more about how the information (i.e. knowledge) out there among the workers can best be utilized in terms of moving the business forward.

Big data is all the rage these days — even if some C-Suite executives don’t entirely understand it — and within the capabilities promised by big data, we need to measure knowledge. Using only ROI and ROE in a knowledge-based economy is akin to running a 2014 NASCAR race in a 1962 car. You’ll make it around the track and probably finish, but you’re not really competing in the same space as everyone else.

How Could We Calculate ROK?

It is tricky because it doesn’t lend itself to hard-and-fast numbers, but some ideas could include:

  • Surveys with team members regarding the ease of cross-functional work
  • Employee engagement tools/measurements
  • Bottom-line turnover year-over-year
  • Percentage of teams collaborating that led to an increase in profits/revenues
  • Meeting valuations

This last one is an interesting case and has been practiced by some large insurance companies. Whenever a large-scale meeting is called, here’s something to consider:

  • Take the salary of everyone attending the meeting and divide by 12 (that’s their monthly salary)
  • Divide that by 20 (their work-day salary)
  • Divide that by 8/9 (their hourly salary). This calculation is even easier if you know their true hourly salary.

If the meeting is scheduled for 1 hour, add up all the hourly salaries of people in the meeting and post that number outside the room, sans context. People will start to ask what it means; eventually, people will understand the numbers. An employee can walk by certain meetings and note that the people in there, for 1 hour, are adding up to about $14K. Hopefully, that’s a focused meeting. Oftentimes, it’s not.

AnswerHub is pushing forward the idea of connecting and sharing knowledge across an organization as the future metric we should all be embracing. The measurement aspect is a challenge, yes, but at this point, the sheer idea of ROK is something to think about and conceptualize top-down: How can the accumulated knowledge and information within an organization ultimately serve as a strategic advantage? And how can that knowledge be linked together seamlessly?

Download our ebook to learn how to maximize your return on knowledge.