Inventory turns of the knowledge asset

In a recent conversation with a friend, he mentioned how their entire business depended on turning inventory into assets and the velocity with which they managed to do that was key to their success (or failure).  Strangely enough, the inventory he kept referring to was something quite unusual…crops (and crop-cycles).  And what’s more he kept referring to terms like Cash Conversion Cycles and Inventory turns, which one would normally associate with retail business.  And yet, here he was, very comfortably using the language of supply-chain and retail businesses in the context of something like agriculture.  Now, what really got me thinking about this post was that he mentioned the importance of knowledge and business intelligence in his business.  For example, how important it was for him to be able to identify the right package of practice for a given soil type, or to make sure that the farmer was trained on the right methods, or knowing how much organic manure was to be sent to a particular taluk or village.  More importantly, it was important for them to get this information and materials within specific timelines, so as not to miss out on the crop-cycle, which in turn was to a large extent, dependent on the monsoon and other factors.  So, here was a business that had a business process where knowledge and BI was integrated into the core operations.  It was not something that was lying in some database, where a Knowledge Management team worked on cleaning, collating and indexing the information, or worse still , some report which was printed and archived in some email never to be accessed.  This was low technology – with Overhead Projectors used for the training programs being the only piece of technology that came anywhere near to being called Hi-tech.

How do we relate the concept of inventory turns to an asset like knowledge? Knowledge has now become recognized as an asset, and the recent accounting standards even permit the capitalization of this asset.  However, like any other asset, knowledge too will generate value only when it is used.  More importantly, it will generate value only when it can be used a number of times in its lifecycle.  This then leads us to the thought that knowledge as an asset too has an expiry date, and its value depreciates over time. It also then gives rise to the idea that it is an item in our inventory, which needs to be churned a number of times – inventory turns.  Are we able to measure Return on Asset for the knowledge asset.

If we consider the lifecycle of a unit of knowledge (I think it has now been assigned a unit of measurement too – A Knol) it gains significance when it is captured as a unit of knowledge, and is recognized when it is used and has provided value.  It therefore stands to reason, that we be able to record the time that it has been added to our knowledge inventory, and be able to track its usage.  The cost of acquisition of that knowledge and the value generated becomes the basis for calculation the return of investment.

That got me thinking into whether the same logic could be extended to knowledge too!

Inventory turns
Knowledge turns
Return on Asset
How can we calculate Return on Asset in the case of knowledge.  What is margin / velocity
When does knowledge become an asset / get recognized as an asset.

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