The objective of this paper is to provide an overview of the current state of theory and practice on valuing Knowledge-Based Initiatives (KBI). Drawing on the literature concerning IT and business value, this paper summarizes what is known about valuing IT-based initiatives, discusses the specificity of KBI and outline main challenges that continue to limit research in this area. This paper also examines how managers deal with these challenges and what metrics they use to assess knowledge value. These managerial insights are derived from interviews as well as empirical analysis of several Silicon Valley firms. This paper gives an emerging approach for valuing KBI and illustrates its implementation with a case study from IBM.
Top2. Theory And Literature
There are numerous conceptualizations of value in the literature. Contention over the definition and nature of this concept has been discussed and debated since Aristotle who first distinguished between ‘use value’ and ‘exchange value’ to address differences between things and their attributes (Aristotle 4th century B.C.). But the underlying discipline for this concept remains economics. Adam Smith (1776) brought the discussion of value and value creation into the development of economics and the study of market exchange. At this stage of the formation of the concept, value was defined as an ‘abstract object’, a general feature of commodities that are exchanged for one another. To arrive at an adequate concept of value it was necessary to discover the origin and source of this common property. And this was only revealed on the basis of further investigation, particularly of the category labour. Marx, like Ricardo, developed a “labor theory of value” where the point of analyzing value was the calculation of the amount of labor “embodied” in a commodity measured by socially necessary working time.
Today, business value subsumes goal attainment, relative scarcity (or effort) and economic worth. For value creation activities to occur, two important economic conditions are necessary (Lepak et al., 2007). First, the monetary amount exchanged must exceed the investor’s costs (money, time, effort, joy, and the like) of creating the value in question, at least for the single point in time when the exchange occurs. Second, the monetary amount that a user will exchange is a function of the perceived performance difference between the new value that is created (from the new focal task, product, or service) and the target user’s closest alternative (current task, product, or service).
In general, without these excesses, neither the user nor the creator of value would be willing to repeatedly engage in these activities over the long-term.