We hired a new person in Beijing today. Every time I hire someone new it raises the question of why it is as expensive to hire a graduate from Beijing as one from California. This is both confusing to clients who perceive China as a 'low cost' outsourcing market and a challenge from a business-owner's perspective.
I was struggling for direction in building our KM platform when renown Indian author Madan Mohan Rao passed me his tome on the subject which illustrated the concept of 3C’s: Content, Computation and Collaboration. Three intersecting circles with step sequence numbers gave me the visual clue for attempting to transform EASTWEST PR from a group of people sharing information by voice and requiring proximity in expensive offices, to an enabled team of knowledge workers who may have short engagements with our company, but who need to have insight into the history of our relationships with our stakeholders, and whose knowledge we need to retain for the next generation of consultants. Identifying the user requirements, core content and business processes became a priority, along with calculating the value of embarking on this initiative.
I categorised our Key Performance Indicators and identified 13 of the benefits of the system that we would build based on: Efficiency, Quality, and Revenue. I took a leaf from Jim Collins’ theory on the economic denominator, and identified ‘time’ as the key metric to be able to buy more cheaply and sell more expensively to eke extra margin from the mature Singapore PR market in which we compete. Improving the quality of our induction process, engagement with journalists and clients became the goal for building a great company.
Enhancing existing margins that were falling to the low ‘teens back to 20 per cent, and selling new services to replace traditional media relations, became the rationale for the top line. I allocated percentages and actual figures to each of the 13 indicators that I wanted. In hindsight, fewer would have sufficed and would have been easier to track.
The key calculation was to look at the economic denominator of the PR business which is time. Agencies hire people and aim to achieve a 15-20 per cent net profit by the following equation:
Salary x 3.0 billings = gross revenue.
Gross revenue – direct costs = 40 per cent gross profit
Gross profit – (fixed indirect costs + variable costs) = 25% EBITDA
EBITDA – (depreciation + tax+Interest) = Net profits
In any professional services firm, in order to increase revenue or net margin requires increasing the number of hours or charge per hour, both of which reach the limits of human endurance and client credulity. My view is that one other way to enhance the margin of the business is to remove all repeatable low level tasks for which people take time but clients will not pay. So we started a process of watching what we did.
We had 10 people spending an hour per day at an average cost of $50 per hour building media contact lists from scratch in excel; a task that clients deem not added value consultancy and therefore non-chargeable.
10 hours x $50 =$500
Annual opportunity cost = $120,000
I figured that this was a task that could be centralised and given to one person using a simple concurrent web-based database and decided that this would be the first KM task to tackle. To reclaim this time and charge clients for it would justify my KM expense alone.
Offering to reduce people’s workload would seem a popular thing to do, but in fact KM represents many cultural challenges and it is the implementation of anything new that requires as much consideration as the application itself. “Information is Power” often translates to “what I know means you can’t fire me”, so why should people share what in a knowledge economy can be their meal ticket? At EASTWEST we believe, as Sir Francis Bacon wrote, ‘Ipsa Scientia Potestas Est’ (‘knowledge is power,’) and that knowledge comes from sharing information and participating in an ideation process that creates a greater result than the individual alone can achieve.
In the first week of launching our centralised media contacts application called Connect, I sat with people as they tried it. I reassured them that information sharing would enable them to move into higher value consulting work, and therefore positioned KM engagement as an essential component of their career success. I doubt my arguments were persuasive but the benefits of ‘one media list for all’ accessible from the office, home or a coffee shop, became so powerful that excel sheets disappeared within a week.
For anyone contemplating a KM initiative, my experience is to find a quick, easy win that will have universal appeal, engage in that application as the leader of the company to give it legitimacy, and let that idea settle in over time before implementing more. This gives the KM team time to consider some of the other key success factors:
KM Framework Audit
Connectivity Devices, bandwidth, interfaces, technology, tools
Content Knowledge assets, context and workflow, strategy for:
codification, archive, retrieval, usage, tracking
Community Core Communities of Practice aligned with business
Culture Of learning and sharing. How to encourage best practice
Capacity Strategies for building knowledge capacity in employees e.g. mentoring, workshops
Cooperation Spirit of cooperation within, and external partners
Commerce Commercial incentives to participate
Capital What percentage of revenues and quantum will be invested in
KM, what are the measurements being used to gauge
efficiency and ROI.
Source: Knowledge management tools and techniques. Madan Rao. ISB 07506 7818-6 pg 34