Essentials of Knowledge Management

4.2. For the Love of Money

Because of a continued downturn in the economy and impending federal legislation placing spending limits on pharmaceutical advertising, owners of the privately held Medical Multimedia conclude that it's in their best interest to sell now, while the company is profitable. Of the prospective buyers, the most promising is the Custom Gene Factory (CGF), a local biotech company. To maximize its position at the negotiation table, the management of Medical Multimedia commissions an independent knowledge audit to establish the value of intangibles in the company—including knowledge worker loyalty and various forms of intellectual property. On the books, Medical Multimedia has a value approaching $15 million, based primarily on tangible assets. However, after the knowledge audit, it's valued at about $30 million—over double the original book value of the company.

With a sale price of $25 million in stock and cash, CGF acquires and absorbs Medical Multimedia into its corporate structure. A $500 million company with about 1,200 employees, including the 75 employees recently acquired in the merger, CGF relies heavily on multimedia to map out genetic structures. It uses these graphics to help sell its services to pharmaceutical firms developing custom drugs for specific diseases and populations.

When the chief executive officer (CEO) of CGF examined the knowledge audit of Medical Multimedia, he was impressed at the value that the KM process added and believed that ...