Leveraging Your Hidden Brainpower - knowledge management - Panel Discussion

Chief Executive, The, July, 2001 by Peter Haapaniemi

Harness your company's knowledge before it walks out the door -- and takes your business with it.

As companies have searched for new business models, raced to enter new markets, and pushed to develop innovative products, knowledge management has become a key issue for an increasing number of CEOs. The importance of knowledge in business is clear--and indeed, equity markets regularly place more emphasis on such intangibles than on tangible assets.

What is less clear, however, is just what executives should do with that knowledge. As this roundtable illustrates, CEOs' questions about knowledge management have shifted from "Why?" to "How?" Their companies are struggling to create solid processes for finding, sharing, and reusing knowledge--and for measuring results to keep improving those processes.

CEOs are also finding that knowledge management is a multifaceted, far-reaching endeavor. Knowledge bases, networks, and other technology are important, but they're just one piece of the puzzle. In deploying systems at numerous companies, Louise Kirkbride of Broad Daylight has found that "the same technology in some organizations works brilliantly and in some it fails miserably." The point, of course, is that "it's an organization issue, not just a technology issue," she says.

"Right now I'm looking for practical approaches," said John Harker of InFocus. "What am I missing? What do we need to do to keep intellectual capital?"

In large part, that may be because valuable knowledge is not limited to patents or product designs, or any single part of the organization. Often, there is untapped potential in the company's knowledge about processes, customers, and supply chain operations. To cover so much territory, knowledge management must encompass everything from reward systems and training to culture and leadership. As James Copeland of Deloitte Touche Tohmatsu explains, "To make this work well requires a fundamental change in the way we do business. We'll either change our organizations or others will change them by sucking the talent and the intellectual capital out of them."

In short, CEOs are in the process of fusing the fundamental and often ethereal concepts of knowledge management with the basic principles of running a business and producing results. They're still in the early stages of that effort, and much work is ahead--but for those CEOs and companies that figure it out, the rewards should be great.

--Peter Haapaniemi

The KM Imperative

James Copeland (Deloitte Touche Tohmatsu): I'll start with a few statements that are perhaps hyperbolic, but they're not far from the truth. One is that every successful strategy is founded on the effective use of intellectual capital. It's not enough to just have the talent or the intellectual capital in the organization. That's like going public and raising a lot of money. You then have a lot of money. The question is, "What do you do with it and what kind of return can you generate?" That's the hard part.

Another point is that the cost and value of goods and services include an ever-increasing percentage of intangible assets. The classic example is the pharmaceutical industry, where you pay fractions of a penny for the actual material that goes into the pills and injections, and a fortune for the intellectual capital.

I would also call your attention to the stock market, where between 1980 and 2000 the relationship between the value of tangible and intangible assets went from a ratio of 1-to-1-with market value roughly equivalent to the value of the physical assets-to a ratio of 5-to-1. It may be 4-to-1 here after the last year, but it's still not 1-to-1. So there's an enormous amount of recognition in the marketplace that something is happening in companies that's not related directly to tangible assets, and I think that's an attempt to value the intellectual capital in those organizations.

There's real value in having the intellectual capital, but only if you find a way to make it valuable for the marketplace. That might be one reason the dot-com companies didn't realize their promise. They forgot that just accumulating the intellectual capital is not enough-that it finally has to produce something for the marketplace.

And technology is important, but that's not the answer. My firm sells technology, so that's hard for me to say. You can have the best information-sharing system in the world, and it can help remove some of the barriers and some of the resistance to sharing-but that's all it does.

The culture of the organization has to recognize the value of knowledge created and shared. And again, that gets back to this notion of why there isn't a bigger differentiation between the compensation of people who create value in a small way or a small, encapsulated way and those who share it and share it largely.

Jack Davis (Ventura Foods): We all are probably pretty good at identifying intellectual capital, and for lack of a better word, talent. What I think we all fall short on is getting that talent focused, and I believe that focus is where the real payoff is. If we're talking about leveraging this intellectual capital, this talent, we need to get it focused on moving that fulcrum point closer to the end of the lever so we can get that leverage. That's the responsibility of senior management. They have to get together and take the pool of talent they have and determine where the skill sets are, because every individual has a different skill set. They then have to get that talent focused.