Excerpt from Valuating Information Intangibles: Measuring the Bottom Line Contribution of Librarians and Information Professionals ©2000 SLA
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by Frank H. Portugal, Ph.D.
Method Two: Knowledge Value-Added
Introduction
Certain industries are driven by technological innovations and, as a result, require proportionally larger and more highly educated staffs to succeed. Health-care pharmaceutical and diagnostics manufacturers are one example of such an industry. Corporations operating in the health care field were one of the very few groups that even professed any interest during the course of this study in tracking the flow and cost of informed wealth through their organizations. Informed wealth is a term coined for this study that refers to the data, information, and knowledge held by an organization
One librarian interviewed at a health care company indicated that a high level initiative in the company had been issued by the finance and administrative division. The objective was to determine how to convert informed wealth into financial terms, such as the dollar value of time saved by input from the library or information center to a business unit. The downside to this approach, however, was the lack of cooperation from business units who feared cuts in their budgets if the library proved too successful in saving them time.
A manager for the regulatory affairs library at another health care company said, "I am serving on a global library task force for the company, which has involved mapping of processes from inception of an idea to a product. This is part of efforts initiated by the library to track the flow of information into products." The effort too appears to focus on time saved for users rather than the value added to a new product or service by the library or information center.
Reported approaches to track the flow of information into products, which can be termed knowledge value-added, are still in relatively early stages of development in the few companies that are exploring such methods. Hewlett-Packard is representative of one industry—office equipment and computers—that has also been exploring how to value knowledge embedded in its various processes and subprocesses.
The knowledge value-added methodology can be developed into a basic model for determining the value of core library and information center services--namely providing informed wealth—to corporations or other types of organizations. The modified knowledge value-added model proposed here will enable librarians and information professionals to make a rough estimate of the value of their primary services to their organizations.
Scope
Measurement of knowledge value-added as a tool, was developed by Dr. Valery Kanevsky of Agilent Technologies and Dr. Tom Housel at the University of Southern California, to help guide business process re-engineering efforts [8]. Business process re-engineering is a set of techniques by which organizations are re-inventing themselves through restructuring. The use of the knowledge value-added methodology helps managers focus on creating value, rather than just cutting costs. It does this by using a surrogate measure for intangible value to determine how much each subprocess contributes to the final product or service relative to all the other subprocesses. The methodology then determines value by assessing the cost of each subprocess relative to its overall contribution.
A methodology such as knowledge value-added that focuses on measuring and comparing intangible value is precisely the sort of methodology needed by librarians and information professionals to measure the value of their activities. The knowledge value-added methodology also should allow librarians and information professionals to compare the value of their activities with the value of other activities in the organization that lead to the development of the same product or service.
The basic idea behind knowledge value-added is to find some surrogate measure for determining how much of an intangible asset—knowledge—is embedded in each subprocess that leads to a specific product or service. A surrogate measure must bear a direct relationship to the intangible—knowledge—that it is charged with measuring. For example, salaries paid to employees carrying out each subprocess would probably not be a good surrogate measure because people are not always paid in proportion to how much knowledge they have about a specific area. Librarians, for example, despite their knowledge and training are, according to Prusak and Davenport, undervalued and underpaid [1]. In addition, many people would consider a Chief Executive Officer who is paid millions of dollars to run a company overpaid despite that person's knowledge.
Three surrogate measures that can each be used to estimate knowledge directly in a subprocess include the following:
1. Time required to learn the subprocess. The more time required the more there is to learn, i.e. the greater the knowledge content.
2. Number of words used to provide instructions for the subprocess. The more words required to explain the process, the more involved the process is, i.e. the more knowledge required to understand the subprocess.
3. Length of sequence of binary questions with Yes/No answers for describing the process. The more questions that have to be answered, the more complicated the process, i.e. the more knowledge needed to resolve the steps of the subprocess.
When compared to specialized accounting methods such as activity-based costing, an accounting method developed for allocating specific costs to products, the knowledge value-added methodology has proven superior [9]. One major automotive manufacturer experimented with activity-based costing but found it too involved for its industrial-based processes.
Assumptions
The knowledge value-added methodology has generally been used to guide decisions about business process re-engineering. It has not, to the best of our knowledge, been applied to a determination of the intangible value of library or information center services. The knowledge value-added methodology seeks to track an intangible asset, knowledge, through the subprocesses that lead to the creation of a product or service. If one assumes that an important subprocess in the creative activity of an organization is the uncovering and furnishing of information and knowledge critical to the project, then knowledge value-added can be a means for also tracking the value the library or information center contributes to the organization.
One assumption, then, is that new products and services, in particular, arise from innovations whose development depends on the flow of informed wealth, in part, from the library to the organization. The informed wealth may, for example, be technical and directed toward the R&D department; alternatively, it may be competitive business information provided to marketing. Of course, there are many other types of informed wealth used by corporations and organizations and these need to be considered as well. The flow of this informed wealth is catalyzed through the users of the information.
To help with the critical evaluations of which subprocesses should be considered, analysts need to organize an ad hoc advisory committee within their corporation or organization. The committee should likely contain at least one representative each from senior management and the library or information center, legal, R&D, marketing, sales, financial, and personnel departments, as well as several relevant key users. Each innovative product or service must be broken down into the subprocesses that led to its development. One key subprocess is the informed wealth provided to organizations by librarians and information professionals.
Once the subprocesses have been defined, an analysis of the knowledge embedded in each subprocess is conducted. The surrogate measure of knowledge used in this application of the procedure is the time required by someone to learn each subprocess. Perhaps the individual has an MBA degree but must judge the amount of time it takes to learn a complex legal or medical subprocess. By using a single frame of reference (one individual), discrepancies or biases can ideally be eliminated from the evaluation.
In reality, individuals with considerably different educational backgrounds, training, and skill sets often must master each subprocess. The time taken for each appropriately educated and trained person to learn his or her subprocesses may give a more realistic analysis than using a single individual whose training and education may not be appropriate for learning most of the subprocesses. Appropriately educated and trained individuals may learn their subprocess at significantly different rates as a result.
The standard knowledge value-added methodology has been altered here to take into account each individual's educational background and training, which may significantly affect the rate of learning—and hence embedded knowledge—in each subprocess. Educational background and training at the professional level can be extensive and therefore overwhelm the figure for the time to actually learn the subprocess. It is recommended therefore that the ad hoc committee determine a weighting system for time involved in education and training and the actual time spent learning the subprocess. To simplify the presentation in the two examples provided, education and training have been accorded equal weight.
Benefits of the Approach
The knowledge value-added methodology offers analysts an opportunity to obtain data that directly ties the intangible value of the services of information professionals to the generation of a new product or service by the organization. Innovative products and services are an organization's lifeblood, because without them an organization may be unable to maintain its share of the market in future years. Furthermore, the innovative nature of these products and services suggests a more intense need for informed wealth compared to mature products or services.
This particular model focuses on the value of the products and services information professionals provide to organizations, not just to individuals at those organizations. The model involves three discrete but general components: identification of the innovative products and services produced by the company, assessment of subprocesses to produce each value-added product or service, and utilization of the calculation methodology. The results of a knowledge value-added analysis provide a return-on-knowledge figure that is similar to return-on-investment figures used traditionally for measuring the value of tangible assets.
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