“The Value of Knowledge doesn’t exist!”

by Paul Louis Iske, Thijs Boekhoff

This article has been written by Paul Louis Iske and Thijs Boekhoff and was published in KM Magazine, November 2001.

Introduction

In the so-called knowledge economy, intellectual assets have become the most important factor in determining the value of an organisation. Many activities nowadays focus on discovering the Holy Grail of knowledge management: the value of knowledge and the added value of knowledge management. Prominent work in this area includes that done by Sveiby and Edvinsson. However, so far it has been difficult to develop quantitative measures that relate knowledge to the economic value of an organisation.

In fact, the subject of valuing knowledge can be considered from a more general point of view, in which the value assigned is not necessarily a financial one. The ‘balanced scorecard’ and the Skandia Navigator are examples of measurement methodologies that could be a starting point for developing non-financial measures that help to determine the value of knowledge.

However, one question should be considered: why bother measuring at all? Many of the attempts, especially in the US, to develop a framework to measure the intellectual assets of an organisation are driven by the need to develop accountancy standards that will be the equivalent of those applicable for tangible assets. Such approaches would lead to the formation of a value for knowledge as being the intrinsic property of the organisation. However, in general this cannot be the case.

Consider the process involved in the acquisition of a company, for example. An important stage is the valuation of the target to arrive at a fair price. The target might have knowledge that is complementary to that of the buying party and thus of strategic importance. In this case, the knowledge has a high value, which will be reflected in the take-over price. Yet if the knowledge is already present in the acquirer’s organisation, or it is of no strategic importance, the same knowledge has little or no value. This example demonstrates that the value of knowledge is context-dependent. We can therefore already formulate the main hypothesis of this paper: the value of knowledge is not an intrinsic property, but depends on context.

In the remainder of this article we will attempt to narrow this statement down and indicate how one could come as close as possible to a workable definition of the value of knowledge. The valuation of intellectual assets remains important in the strategic (management) processes of every organisation. Research from Gartner, for example, revealed that companies that pay explicit attention to the management of intellectual assets achieve anything up to a 30 per cent improvement in bottom-line performance.


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