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Return on Intelligence - Background
The idea that intelligence is valuable is often hinted at in literature, business and otherwise. Most people are aware that "knowledge is power,"and many suspect that the phrase "the meek shall inherit the earth" was actually a reference to nerds (thus the adaptation, "the geeks shall inherit the earth"...). More recently, especially with the broad and general use of ever more connected computers, networks and data bases a formalized discipline of Knowledge Management (KM) has emerged. The intent of these efforts are to make the organization "smarter." Documenting that effect requires a measure like "Return on Intelligence."
Although the Wikipedia article mentioned above associates the beginning of Knowledge Management with the early 1990's its history predates that. Professional services firms were beginning to understand that their competitive position would soon be driven as much by information and knowledge as relationships. Before there was a worldwide web or Google or SharePoint, much less Wikipedia, they were aware that networks of computers providing information to users, what KPMG called "The Shadow Partner," could make it possible for each individual in a community to understand and apply who knows what about what to client issues in near real time: . The Competitive Intelligence arms of corporations and institutions had long used computers to aid in their research. It is well known that intelligence agencies (CIA, NSA, MI5, KGB, etc.) rely on computers, data bases, search, filter and analysis to understand and infer what they need to discover and know.
The 21st century has seen the emergence and rapid growth of Social, Local, and Mobile technologies, what John Doerr of Kleiner, Perkins calls So-Lo-Mo technologies. When leveraging their Transaction and Process forebears they can create return on investment from doing things intimately and Intelligently.
That is, they make the actors and operators at the point of economic exchange more intelligent about that exchange, more capable in it, thus making the exchange itself more efficient (in the market sense). Their impact is accelerating as this graphic by Mary Meeker demonstrates.
Organizations world wide have spent many hundreds of millions of dollars assessing the current state of KM, defining KM strategies and implementing various KM technologies. Increasingly investments in knowledge and learning technologies are found at all levels of organizations. In the case of efforts like The Shadow Partner the value of the investment was meticulously linked back through Value Chains, Critical Success Factors and other vehicles to the strategic imperatives of the firm, but a financial return was not calculated.
Hypothesis: Return on Intelligence satisfies the need for a measurement schema by which managers can make investment decisions in this space in a manner consistent with other investment decisions. It does so in a manner consistent with and rarely separate from returns from transaction execution and/or returns from process execution.
Framework: Return on Transactions
Since earliest uses of computers they have worked on the Transactions that drive business functions. Think of the initial payroll, inventory, and personnel systems. These early systems, which also reinforced silos by function within business, are now deeply embedded in core, infrastructural systems like SAP for a manufacturing company or the core Back Office systems of a financial institutions. Investments in these systems typically have clear financial return measures. The transactions have financial value, the speed and quality of the transactions have financial value, etc. For the purposes of this framework this is defined as the Return on Investment from Transactions (ROIt).
Framework: Return on Process
With client/server, LANs and then the internet organizations had the capability to fill a demand for systems that cut across functions to do things better. The disciplines of process engineering, or more simply, re-engineering were the result. On the one hand the systems that resulted allowed data and information to be consumed and used by Process, the way business worked, instead of by Function, the way it was organized. Those technologies enabled, supported, and drove a redo of the ROIt systems on more efficient and effective process oriented platforms.
Crucial to the value of these investments is that they do not merely cover the same ground as ROIt investments. Because these systems act across functions they can integrate a wide number of business functions and have given rise to: Enterprise resource planning, supply chain management, groupware and collaborative systems, Human Resource Management Systems and customer relationship management.
The measure for these investments is Return on Investment from Process Integration (ROIp).
Framework: Return on Intelligence
This market efficiency from So-Lo-Mo technologies is transforming the way technology effects society. [EXPAND] It also generates Return on Investment from Intelligence (ROIi).
As before, this enables a redo of transaction and process integration on better platforms as well. [EXPAND]
Concepts to use:
Discipline of Market Leaders leads to three kinds of intelligence, Customer Intimacy, Operational Effectiveness, Product Function?
Integrate Returns on Investment
All organizations must operate on all 3 levels of return on investment ROI = (ROIt) + (ROIp) + (ROIi). [EXPAND]
- "KPMG Peat Marwick: The Shadow Partner",HBR 9-492-002