(FORTUNE Magazine) – A cynic, said Oscar Wilde, knows the price of everything and the value of nothing. If so, many managers are cynics: They know their costs, but not what their work is worth. Markets establish value: A product or service is worth what a buyer will pay. But some work is never sold -- for example, back-office services like creating purchase orders. The lack of a measure of value for such processes bedeviled Thomas Housel, who was responsible for reengineering at Pacific Bell and is now a research director for Telecom Italia, the Italian phone company. Says he: "Reengineering ought to increase value, not just cut costs -- and especially not cut costs at the expense of value. Without a salable output, we had no way of knowing if we increased value or of figuring a return on investment." Working with Valery Kanevsky, an expert in the mathematics of complexity and two-time winner of the U.S.S.R.'s Olympics of Math, Housel found a recherch but ingenious solution to his dilemma. Hewlett-Packard, which like many information technology companies sells reengineering services on the side, has begun to use the Housel-Kanevsky technique, which it calls business process auditing. It is a lens through which companies can measure how efficiently they create value from information; as such, it can help them manage certain intellectual assets. The premise of Housel and Kanevsky's work is that value-added equals change; that is, raw material enters a process, workers alter it, and something more valuable comes out. No change, no added value. Of course, some changes don't add any value, but when knowledge work has a reasonably well-defined output, such as a purchase order -- the technique can't be used for creative processes like designing dashboards -- it's possible to measure the change in terms of information. In its most precise form, this would be done by counting how many bits and bytes are changed during the work, but a plain-language description will often serve as well. Using a universal language like bits and bytes permits comparisons between processes or companies. For example, one could compare telephone order-taking at L.L. Bean vs. Lands' End in terms of information added per dollar. From there it's easy to calculate return on investment. To make sure it's value that is being added, not just verbiage, Kanevsky adapted work done by Andrey Kolmogorov (190387), a renowned Russian mathematician who in the 1960s developed ways to describe complex systems in the shortest possible mathematical form, eliminating all redundancies, repeats, and patterns. At Pac Bell, Housel and Kanevsky used the technique to show that a new process to take orders for phone service yielded 80% more value per dollar of cost than the old system -- that is, it could process knowledge more efficiently. "Knowledge," says Kanevsky, "is the genome of a company. If you could write down all the knowledge, you could clone the company." Or genetically engineer a more efficient version.