IT STRATEGY - You are going to be tested on it soon. So have you done

Knowledge management (in IT jargon, inevitably, it has become known as “KM”) is one of the hot buzz words of the day. Of course, one of the problems with the IT industry is that it has never drawn boundaries very well. In the motor trade, you’d never get away with calling a pick-up truck a “fleet car” or a “family runabout”, but technology companies know a good thing when they see it, so anything that has the remotest connection with the sorting, storing, creation or retrieval of information has now been burdened with the “KM” tag. In conversation with Financial Director, Ronald Weissman, a vice-president at search engine specialist Verity (which probably has a better claim than most to be in the KM field), recently railed against this trend. “Knowledge management is a lot of hot air and hype,” he said. “It has raised consciousness that textual information can be a huge aid in a whole range of mission critical situations. But the claims are overblown. Read KM World Magazine, and you’ll see adverts for KM scanners and bar code readers – it’s out of control.” While stationers might see this as great news – hey, why not re-badge that ring-binder as a “KM non-digital storage unit”? – the truth is that the hype may spoil what looks to be one of the more important developments in IT thinking. And one that FDs ought to be looking at very carefully. At the heart of the attraction of KM is the amount of information that various groups of people expect from companies these days. All documents are now created on computers and ought, therefore, to be easily retrievable. Want to find the memo that authorised commission levels in the sales department? Well, it is probably on a hard drive somewhere, and with modern searching techniques, you do not even have to remember what the file was called. The speed with which we have all started using computers to create and store information has actually been greater than our ability to evolve ways of sorting it. Unless you have draconian policies on the filing and backup of every staffer’s documents and file folders, it is likely every PC will be arranged uniquely according to the user’s own organisational instincts. This isn’t good enough, if for no other reason than the fact that under corporate tax self assessment (CTSA), the Inland Revenue can require you to dredge up all manner of information to justify your tax returns. (There are a host of other great reasons for managing corporate knowledge properly, but coping with the Revenue has always been just about the most compelling reason to do anything.) Obviously, the Revenue is a terribly unfair organisation. CTSA is pretty much a fixed game: unless you are totally clairvoyant or extremely lucky, you will probably end up either borrowing money from or lending money to the taxman at grievously unfavourable rates. Further, if the quarterly payments on account are wrong by too large a figure (if the interest accrued is over £100,000, which at 2.5% over base will not require a huge error for large firms), the Revenue will assume lack of conscientiousness on the part of the tax-payer and investigate further. And while the Revenue has no statutory right to demand documentation in support of a return, if FDs are going to make even reasonably accurate payments on account, they will have to manage, in some organisations, millions of transaction reports and supporting documentation. Tax exemptions for specific activities, for example, are often not recorded in the financials system, but will be vital under the terms of CTSA. Equally, if a company is unlucky enough to be selected for examination, the Revenue will look for process trails to show how and why individual transactions were treated in the accounts in a certain way. So, according to David Norton, tax partner at Arthur Andersen, controls and procedures down at the bought ledger level will be critical. If the Revenue has qualms about even, say, 5% of invoices, it will have the power to take an additional 5% in tax. Failure to produce documents demanded by the Revenue will also incur fines – up to £1,000 a week per instance. A group with 12 subsidiaries, which faces demands for a single set of documents, for example, may get fined £1,000 per document per week (ie, £12,000 per week) for failure to produce. Ouch. Still wondering if document management and KM technologies are a waste of time? One further argument: Norton suggests that FDs maintain excellent relationships with their finance function staff. The clerks, accountants and computer operators may actually be the only ones who know where to find some of this key – and potentially very costly – information in the system. And if it isn’t recorded on the system, golden handcuffs to keep their valuable brains in the company might be a wise move. Alternatively, thinking about how you capture and organise information and processes could be a better long-term solution. Financial Director has seen a large KM installation at Nortel, the telecoms giant, which had been made possible using technology from OpenText, a specialist in the sector. It is basically a corporate intranet – a kind of World Wide Web existing only on the company’s network – which allows users to store and display information about their job, their department, financial data, ideas and even personal foibles on a Web site so that others in the company can search for it. Changing the mindset of employees so that they trust and use the system frequently is vital to its success, and in all fairness, that’s probably a lot easier in a technology company than in other industries. And getting the format right first time is also important – it does not help if the information is input in a thousand different ways. But whether or not you choose an intranet, some proprietary document management system or just rely on damned fine filing cabinets, managing your knowledge properly is only going to become more important. Finally, don’t do it just in case the taxman calls – this sort of technology might even give you competitive advantage. And if Inland Revenue fines are not sufficient motivation to get on the case, shareholder value certainly should be.