F11- Cost of Ignorance

In knowledge management (KM), replication of best/good practice is very common. Knowing what NOT to copy/do is as useful as knowing what to copy/do. Yet I hardly see any sharing of “worst/bad practices” (and so I offer the Page on “Learn from My KM Mistakes”).

From a KM perspective, I see two types of ignorance:

Ignorance of “what does not work”
can be costly. Can we call knowing “what does not work” as, say, “obverse knowledge”? Ignorance of obverse knowledge can result in repeating mistakes, costly rework, wasting resources and destroying value — and this is the first type of ignorance. The expected benefit of obverse knowledge is the avoided cost multiplied by the probability of doing “what does not work” in the absence of obverse knowledge. We usually learn from our own mistakes and do not repeat them, so the cost from the first type of ignorance arises more from unwillingness to acknowledge and share “what does not work” to other users in the organization. Repeating mistakes is a sign that an organization needs KM. Using the same KM framework I have been illustrating in past several blogposts:

Cost of type 1 ignorance

A signal that a corporation must stop doing something is when its market value dips below its book value; then it makes more financial sense to liquidate the company immediately than to continue operating! If the owners would rather continue operating their corporation, then KM to help such a corporation is KM to identify what is destroying value. That corporation needs “obverse KM”!

Type 1 ignorance is less if you listen to critics and to people who disagree with you. You won’t learn anything from people who always agree with you!

Ignorance of “what works better”
is the second type of ignorance. Because there is almost always room for improvement or innovation in anything we do, this is the most common or widespread type of ignorance. Hence it is also the more costly. The cost of this type of ignorance is the benefit foregone by all users who did not know “what works better.” Again, using the same KM framework:

Cost of type 2 ignorance

The company foregoes benefit if it does not know what improvements to make in its business processes, or it does not know that a new redesigned product would gain it many more customers. The foregone benefit can be very large if the corporation did not know that it could well adopt a new and better business model.

The common reason for the second type of ignorance is simple: company executives are often not aware of ALL its business assumptions. They are unaware of some of their limiting mental boxes and blindfolds, or they are using a framework that prevents them from seeing what is in front of them. Blindfolds preventing top executives from discovering a superior alternative business model are very costly!

Innovators, inventors and improvisers contribute to reducing Type 2 ignorance. When you next hear an idea that seems “crazy” or “weird” to you, refrain from dismissing it outright — it may be an opportunity to discover one of your own limiting assumptions!

One of our KM clients was the Philippine subsidiary of a multinational school. Its executives were frantic; their school has been incurring losses for the last three years. They know they have to stop doing something, or start doing something new, or both. They realize that they don’t know something: either (a) something they are now doing is not really working and must be stopped (destruction), or (b) they should do something new they are not yet doing (creation), or both. What “creative destruction” do they need to do?

My NGO — CCLFI.Philippines — developed a strategic KM service package we call Green Spot Strategic Planning© to assist top executives of a corporation discover the blind spots in their business assumptions, review their current and potential value drivers (a technology/market foresight exercise, customer survey and financial audit precedes the workshop), align/reconcile personal and organizational dreams, and make collective decisions on whether and how to revise their business model. “Green spot” is the “space” where a team can productively engage in reflective innovation, resulting in creative destruction.

In the following school year, our multinational school client approximately doubled its student enrolment.

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