For Illinois Agency, Knowledge is Power—and Promise

How can state governments stop reinventing the wheel every time a valued employee leaves with institutional knowledge or files detailing the processes and systems at the heart of a department’s function are lost?

The E-Gov Institute credits the Illinois Department of Central Management Services (CMS), the chief procurement organization for the State of Illinois, for taking an innovative approach to keeping information current. The department’s knowledge management (KM) system has already helped save more than $100 million, or 14 percent of an estimated FY04 procurement spend of about $7 billion in its first full year of operation.

For its efforts, the E-Gov Institute recognized CMS with a 2005 Knowledge Management award for using innovative KM practices in the public sector.

This is CMS’ second national award. The department also received the 2004 Cronin Classic Gold Award from the National Association of State Procurement Officials (NASPO) for its “Transformation of Procurement Performance.”

CMS has saved money by launching a quick-start system on Lotus Notes rather than investing in new technology that costs millions of dollars. Furthermore, the KM Division, established to manage the system, has created a more connected and continuous learning environment by integrating business functions with pertinent information to support effective decision-making and minimize reinvention and knowledge evaporation.

In 2003, under the direction of Gov. Rod Blagojevich, all state agencies were given a redesigned procurement function and a directive to attack shortfall in innovative ways. Tough budget cuts were inevitable. Still, all agencies were told to find ways to enhance their value.

Knowledge management promises to cut costs and boost efficiency on a daily basis in Illinois state government. More important, however, may be the legacy KM sets for spending decisions three and five years from now—not only in Illinois, but nationwide.

What KM is—And What it Could be

Before buying a car, many shoppers consult the Edmunds Guide or the Kelly Blue Book, forms of a knowledge management system that has been around for decades. These leading auto valuation guides, like most sources of consumer information, have meanwhile migrated to the Internet, providing the historical data, buying tips, and model information necessary to make an informed purchase of a new or used vehicle.

Knowledge management within closed institutions works on the same principle. Internet- or intranet-based libraries capture and house critical information necessary to the running of a department, a division, or an entire organization.
In CMS’s case, KM is being used to harness all aspects of the procurement process, including resources, standard forms and contracts, negotiating tactics, employee procedures, product research, contractor screening, contractor performance, and industry news—all with a research function available to staffers at the touch of a button.

In most states, such procurement information has existed in random file cabinets, computer hard drives, and people’s brains but never in a universally accessible place. That is changing now. KM has the potential to drive efficiency and cost savings in ways state governments have never seen.

“Reinventing the wheel is one of the costliest parts of doing business,” says Paul Campbell, CMS Acting Director. “Given the decentralization that’s endemic in state government, it’s a huge, continuing problem for public agencies. Can you imagine the revolution if every procurement department in every state in the country had access to a nationwide library and communications system that would allow them to see model contracts, negotiating strategies, and real-time pricing information on everything they needed to buy?”

To date, no other state’s procurement department is attempting KM in the way Illinois is. CMS employees, with the help of CMS’s KM research staff, have been trained to harvest new sources of information in making purchasing decisions.

Today, procurement officers are as likely to demand years’ worth of a potential supplier’s financial data, court documents, and news clippings as they are historical bid data. In the past, purchasing officers might have sought out this information, too, but they had to dig for it themselves, building mounds of valuable information in paper and computer files that none of their colleagues would likely ever see.

Now CMS employees can send detailed requests to a central KM desk, where research packages helpful to the decision-making process are assembled within a day or two.

Proclaiming Best Practices Across State Borders

The ideal future scenario for procurement knowledge management, Campbell believes, is information-sharing across state borders.

“What would happen if a food buyer for Illinois prisons could directly contact a peer in Colorado and exchange information on various vendors and purchasing strategies?” Campbell asks. “What if everyone could see the way the state of Pennsylvania just handled a media buy? You’d have innovation and savings at the point of investigation, which is generally lost in big, encumbered organizations. With KM, you capture the conversation and planning.

“I think department heads in state governments really need to see themselves as executives in state government,” Campbell adds. “In these times, we have the responsibility to create operating models that work well and will outlast us. If you create a successful system to capture and share best practices not only in procurement but in all areas of government, that becomes a system that serves citizens no matter who is in charge.”

Campbell believes it is no overstatement to say that effective KM in the state purchasing arena could have the same effect on state contractors and vendors that Wal-Mart has had on suppliers in the retail arena: a revolution in pricing and delivery that could change the balance of power in favor of the purchaser. In the case of CMS, this would extend to Illinois taxpayers, as well.

KM Cuts Costs by Revealing Redundancies

As part of its effort to become a more effective service agency to state government, CMS created the Bureau of Strategic Sourcing and Procurement (BOSSAP), which is changing dramatically the way the state buys goods and services. CMS separated procurement functions into five separate “portfolios,” providing outreach to various procurement staff throughout state government offices.

Today, all CMS user agencies are required to develop a business case for planned procurement. To help agencies provide the best business case possible, BOSSAP formed the Knowledge Management division to supply the five portfolios with research, professional development, procurement systems administration, contract compliance, and a procurement call center. The KM division has found redundant procure- ments, a major reason for waste in government.

“Gov. Blagojevich has provided a mandate to all state agencies to spend and save more responsibly,” Campbell says. “KM has not only improved our procurement practices inside the department, but it’s making what we do more transparent throughout state government. That’s critically important.”

First Acceptance, Then Bells and Whistles

Of course, technology is useless unless it is actually used. For CMS, it was imperative to design a system that was familiar, easy to use, and affordable. With these factors in mind and with the help of international consultant McKinsey & Co., CMS grafted the KM system onto an existing Lotus Notes platform.

“Lotus Notes was a natural fit for the prototype system we’ve launched because CMS staffers already were working with it, and it enabled us to build the first-generation KM database,” says Marla Capozzi, the McKinsey consultant who helped develop the system onsite. “We find that in the initial stages of knowledge management, it’s best to learn your lessons easily and cheaply before you make the organizational and financial decisions to move on to something bigger.”

Getting the system up and running cost less than $20,000, excluding wages and benefits for KM staff.

The current system is structured under five categories: Strategy and Performance, Market Intelligence, Procurement Intelligence, Vendor Negotiations, and Experts. The data can be viewed in three ways: by index, category, or portfolio.

The system provides staff with weekly reports, contact information, policies, and procedures. Special areas are also set aside for training and learning, external resources, definitions, and system links. This information is updated whenever changes are made.

While the Lotus Notes system has been an early success in getting employees involved with the concept of KM, CMS officials hope eventually to upgrade the system with state-of-the art KM technology.

Simplifying Searches

Since its inception, the CMS knowledge management system has processed hundreds of research requests. Any member of the procurement staff may submit a request electronically to the research team. CMS Chief Knowledge Officer Shelly Martin and her staff provide real-time reference services for portfolio managers and buyers who need to find benchmarking and industry data, pricing, product information, and other states’ best practices and analysis on particular purchasing issues.

The process is simple. Within 24 hours of a request, researchers acknowledge the request and begin the search. Once the research is done, KM staffers create a written report that is e-mailed back to the requester and filed within the KM system for future reference.

The KM library now contains a variety of content, including external benchmarking resources, bureau policies and procedures, and training resources, as well as the procurement calendar and cycle. In addition, Illinois is in the process of developing expert lists of procurement professionals from other states and codifying procurement best practices nationwide.

For most organizations, knowledge has become the most important asset, Campbell says. The ability to manage and exploit such intellectual capital can create sustainable competitive advantage and improve the efficiency with which government operates.

Encouraging Contagious Cultures of Communication

“State agencies are a different culture entirely from private industry,” Martin says. “A learning culture just isn’t prevalent in government, so knowledge management has to be introduced in a way that’s easy to use and provides an immediate benefit. It’s gotten off to a good start.”

A McKinsey quarterly article points out that building a learning and sharing culture requires giving employees incentives to share. That means providing awards for usage and contributions to the knowledge base or bylined credit on articles or data that can guide employees in future projects that might benefit from that experience.

The cultural change within CMS has been significant and is progressively spreading to other state agencies. In the past, communication among CMS procurement staff members was sporadic, at best. Communication between procurement staffers at various other agencies was nearly nonexistent. The agency expects this to change as KM develops.

Securing Information Resources for the Future

Staffers generally love KM because it helps them function better and accomplish more on the job. Those are great rewards, but how valuable they are in terms of dollars remains to be answered at CMS.

Though KM already has helped the state realize more than $100 in procurement savings, Mike Smith, CMS Chief Operating Officer, has not put an exact dollar figure on the value of KM just yet.

“We have been using a prototype system built on an in-house application and used primarily by CMS employees,” Smith says. “Once we move to a true knowledge management system, we will most likely incur some costs, but our ROI (return on investment) will grow tremendously as the system will be more user-friendly and will be made available statewide.”

There is another good reason to invest in KM on the state level: the expected mass retirement of baby boomers in the next 20 years. All employers, not just state government, are facing a major knowledge crisis as these experienced workers leave the payrolls.

Organizations need to harness this wealth of experience and ideas before a “brain drain” occurs as a result of these retirements. A KM system that can preserve the intellectual capital of its workforce will more than cover its initial investment—and that’s not even counting the value of the additional knowledge that will be archived in the future.

Every four years, state governments face turnover in leadership and staffing that few organizations in private industry ever encounter, even in the most turbulent times. Thus, information-gathering and knowledge management are critical to eliminating redundant processes and preserving intellectual assets across state agencies.

At CMS, the State of Illinois is conducting one of the fledgling experiments in public sector knowledge management. The results are already promising. With a modest initial investment, Illinois hopes to be the state that launches a nationwide revolution in information sharing to eliminate waste and maximize the value of each taxpayer dollar.

Editor’s Note: For more information about the Illinois Department of Central Management Services, visit www.govinfo.bz/5195-152.

Customizing a KM Program to Meet Individual Agency Needs

• Create a team approach to ensure usage and growth of a KM program. Best-practice organizations create cross-functional steering teams of senior management to guide the implementation of knowledge-sharing approaches, behaviors, and measurements, which can ensure buy-in, quick wins, and a lasting impact.
• Focus KM efforts on business objectives and measuring tangible outcomes. Not necessarily a function of maturity or length of time managing knowledge, the return on investment for KM depends on an organization’s objectives, scale, and scope of KM activities and how integral they are to the core business process. Demonstrate the link among investments, KM activities and behaviors, and desired organizational outcomes. Whether just beginning, launching pilots, or managing a sophisticated enterprise effort, organizations can benefit by doing an assessment each year to uncover gaps, promote strengths, and develop improvement plans.
• Consider costs and investments carefully. Costs can be ramped up over the life of the system based on usage and applications. KM doesn’t necessarily require a huge investment starting out, just one that matches a carefully considered plan of service.
• Start with developing measures of KM activity, process impact, and business outcomes. Qualitative measures help, but quantitative metrics are critical in building support. Plus, different stakeholders will be interested in different measures. KM leaders suggest tying new KM measures to already accepted process measures and metrics.
• Use a blend of knowledge-sharing approaches that incorporate people, processes, content, and technology. Not all business areas will benefit from the same approach. All KM organizations surveyed by APQC employ communities of practice (CoPs) and content management, and 87.5 percent use expertise locator systems and best-practice repositories to capture, share, and transfer knowledge.

Source: American Productivity & Quality Center (APQC)

Capturing Critical Knowledge from a Shifting Work Force

With retirement, rapid growth, turnover, mergers and acquisitions, and internal redeployment, an organization can risk losing its collective knowledge. A strategically aligned knowledge capture and transfer system can counterbalance both inevitable and unforeseen challenges by using the following tips:

• Build the awareness of knowledge loss as a strategic issue, and tie efforts to corporate goals. Champions may want to identify a burning platform issue related to knowledge loss or an external best practices example in knowledge management.
• Create a business case that details the first iteration of the knowledge retention strategy and describe how knowledge management and knowledge retention efforts complement organizational goals. Strategies may focus on different objectives such as orienting new hires quickly or preventing the loss of technical knowledge.
• Kick off your efforts with a pilot project to demonstrate that knowledge management will positively impact organizational performance.
• Create a structure and dedicate resources to expand and sustain the initial knowledge management efforts. The organization must make a conscious decision to invest in these efforts.
• Separate critical and inconsequential information. Focus on capturing knowledge related to significant functional areas.
• Identify those who possess critical knowledge by interviewing employees in changing roles and senior management. Mapping the flow of knowledge reveals who creates the knowledge, what knowledge these creators have, and who else needs it.
• Document explicit knowledge such as contracts and manuals through shared drivers, communities of practice, content management systems, and decision support systems.
• Cultivate tacit knowledge through activities such as training, project milestone reviews, and mentoring.
• Embed knowledge management into daily activities. Build knowledge capture, sharing, and reuse into work processes with tools such as portals that deliver just-in-time information.

Source: Capturing Critical Knowledge From a Shifting Work Force, a guidebook published by the American Productivity & Quality Center (APQC). For more details, visit: www.govinfo.bz/5195-151.