Thanks for your reply, Stephen. It IS “a useful alternative to traditional methods for claiming a positive return on investment,” and I’m glad you made that point in your post. One of my purposes was to point out that cases like Partners HealthCare and Alcoa could also be viewed as KM cases (even though Alcoa never used that term) that delivered risk reduction, or as you called it reduction in “critical failure cost.”
Even a case like Toyota which is normally viewed from “lean” and “Quality Management” points of view, can be seen as a KM case, where KM is reducing the risk of defects in cars, with a goal of virtual zero defects over the long term, as well as the risk of waste in industrial processes. The KM aspect of Toyota becomes clear by calling attention to its comprehensive mentoring approach to achieving quality, in which workers at all levels are viewed as knowledge workers whose skills at continuously seeing problems, swarming and solving problems, and sharing the new solutions world-wide must be continuously improved.
These skills are seen as the key to continuing Toyota’s march to virtual zero defects in the long term. And leadership at Toyota involves, perhaps more than anything else, as a continuing effort to enhance the skills of “team members” in seeing and solving problems and in sharing solutions. In my favorite terms, KM at Toyota is about enhancing knowledge processing skills on a continuous basis.
Moving to the ROI question, I wanted to distinguish what you were pointing to from ROI, because of the technical nature of that term and its normal monetary connotation. Risk reduction or reducing the critical cost of failure, are both ideas that are much broader than ROI in some ways and much narrower others. In any case, they are different ideas I think.
I should perhaps mention that the whole Balanced Scorecard idea involves a recognition that monetary ROI is not enough for impact evaluation, and it certainly contradicts Sameer Patel’s idea that impact is the “before” and “after” difference in an income statement. Apart from the fact that this doesn’t take account of the possibility of things other than one’s intervention “causing” the change between “before” and “after,” monetary ROI certainly is not enough for impact evaluation in Government or non-profit settings where non-monetary values are so important.
Further, Balanced Scorecards and their widespread adoption show that private businesses have also come to recognize that financial indicators, including ROI, are too narrow a basis for evaluation of the effectiveness of innovations, and, more generally, change initiatives of all kinds. Still further, Balanced Scorecards themselves are too narrow. They do a lousy job of incorporating intelligence performance metrics, and rarely incorporate external sustainability impact metrics. I’ve done some writing on these issues here and here, and I’m collaborating on another paper with Henk Hadders and Steve Cavaleri entitled “Measuring Organizational Sustainability Performance: The Adaptive Quadruple Bottom Line Scorecard,” (AQBL) which will integrate intelligence performance, external impact, and ecological and social footprint perspectives into more comprehensive Adaptive Scorecards.
Even, the AQBL idea doesn’t encompass the issues involved in looking at the consequences of KM interventions. AQBL takes us beyond a focus on specific risks to a more general evaluation; but it doesn’t yet treat the issue of value interpretation of descriptive impacts of KM in terms of non-monetary benefits and costs – if you will non-monetary or “real” ROI. I written some about this here, and in a portal context in Chapter 4 of my book on Enterprise Information Portals.