PUTTING A PRICE ON KNOWLEDGE

- William Sheridan -

Paul A. Strassmann
ASSESSMENT OF PRODUCTIVITY, TECHNOLOGY AND KNOWLEDGE CAPITAL
The Information Economics Press, http://www.infoeconomics.com, 2000

Mark Clare & Arthur W. Detore
KNOWLEDGE ASSETS
Harcourt Professional, New York, 2000

Conceptual Foundations

The case that Mr. Strassmann makes in this e-book is deceptively simple, yet very important. From a business perspective, the cost of and use of knowledge must be accounted for just like any other resource or investment. If you "put on your business hat" this seems both obvious and feasible - but those who have tried to actually do it, have not usually produce credible results. I put such previous failures down to two shortcomings: (1) there is often a high "magical" component to many conceptions of knowledge; and (2) attempted costing formulae are not well developed.

In this publication, Paul Strassmann overcomes both challenges. Regarding the definition of knowledge itself, he shows that what is needed is NOT an essentialist approach (trying to explain everything), BUT RATHER a pragmatic approach (what value does it provide). This is analogous to defining energy by the results it produces, NOT the "real meaning" of the phenomena. Since by this business definition, value is the measure of importance, value-added is the concept Strassmann harnesses to evaluate productivity AND appraise investment.

To illustrate the concept, Strassmann uses a "case study" throughout the book. He gives the rationale, formulae, outcomes, and supporting data for the steps in his methodology. After reading the book, it suddenly makes sense that there are criteria by which to judge the feasibility and results of investment in computer systems and employee training. And although these are business criteria, they require some new thinking about how to attribute characteristics and calculate costs. Since knowledge is a different kind of resource, it requires metrics that represent the unique contribution it makes to business, especially since that contribution provides a growing proportion of the value-added AND completely reorganizes the value-chain in the process. This is a "crash course" in the economics of information and knowledge, and in less than 100 pages you can experience a paradigm shift that transforms knowledge from a magical elixir to a business tool.

This book is available through The Information Economics Press.

Methodological Elaboration

Clare & Detore use the kind of insights Strassmann provides to develop an elaborate methodology for applying such costing to knowledge investment decisions. First they introduce you to the many accounting formulae that are used to price other investments. Then they show that there are analogous features in knowledge parameters, so each formula can be transformed into a tool for measuring knowledge value. Similar to the concept of a value-chain is that of a knowledge tree, which allows you to chart how inputs are organized and synthesized into knowledge-value outputs. The over-all result is a template for knowledge management proposals, and a set of tools to estimate the advisability of different types of investment in knowledge assets (skills, processes, technologies).

The book includes a CD with spreadsheets that have the formulae built in to them - you add the figures from the case you want to compute, and the results are provided. There are sensitivity analysis calculators to help you determine what is important in the process, and electronic document versions of the proposal template. For those knowledge management investment decisions with substantial sums at stake, Clare and Detore provide the tools to clarify the issues and justify the choices that a business proposal should include. And in the case of questionable proposals, there are also the indicators of where and how to make adjustments to assure viability. Now we can apply knowledge to knowledge management instead of just "winging it"!

This book is available in the United States through Amazon.com Bookstore.

This book is available in Canada through

KNOWLEDGE ASSETS

cypher@sympatico.ca

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