Taking Stock of What You Know - intellectual capital - Statistical Data Included

Chief Executive, The, July, 2001 by Bob Woods, Peter Haapaniemi

What is the value of your organization's intellectual capital?

When the startling news broke in January 2000 that Time Warner and America Online were merging, one of network television's principal financial analysts initially reported that the media conglomerate had decided to devour the ubiquitous Internet service. He soon reversed himself, after details revealed that it was the other way around, and that AOL was doing the devouring. The confusion, while innocent enough, left no doubt that the Information Age had taken hold. Here was the cute upstart that gave us "you've got mail" acquiring the titan responsible for Time, Warner Bros. and CNN. Steve Case had eclipsed Henry Luce, and the business world would never be the same.

AOL Time Warner exemplifies the 21st-century reality that what you know outweighs what you have. Sure, Time Warner owned a stable of top magazines, TV properties and a huge film library. AOL, though, had the biggest chunk of the Internet on its virtual plate and untold growth potential. That's enormous intellectual capital, which in the Information Age has a greater upside than physical and financial assets.

"Information and knowledge are the thermonuclear competitive weapons of our time," wrote Thomas A. Stewart in the foreword of his 1997 book, Intellectual Capital: The New Wealth of Organizations (Bantam). "Knowledge is more valuable than natural resources, big factories or fat bankrolls."

Over the past few years, that concept has invaded the corporate lexicon. You're expected to knowingly nod your head at the mention of such terms as intellectual capital, knowledge management, human capital, organizational learning, intellectual property and knowledge sharing -- even if you're not quite sure what they mean. The latest addition to many C-suites is the CKO, or chief knowledge officer, an individual who is charged with harnessing a company's collective knowledge. Research abounds, articles appear, seminars convene, and consultants advise on what is undeniably a major boardroom buzz.

There's some potent sting behind this buzz, though. Leveraging every kernel of what a company knows -- as well as the people who create, capture and use it to generate revenue -- makes natural business sense. Think of it as corporate ecology -- the symbiotic coexistence of everything within a certain territory, thriving when it all comes together.

"If we get this right, this will be the glue that binds our company together as a truly global practice," says Jerry Leamon, global managing partner, tax and legal, for Deloitte Touche Tohmatsu, the professional services firm that has made knowledge management an organization-wide initiative. "It means sharing information and best practices and creating virtual practice units as we serve clients across borders."

THE NEED FOR KNOWLEDGE

A Conference Board study released late last year found that although 80 percent of the 200 senior executives surveyed acknowledge that their companies have some type of knowledge management (KM) efforts under way, only 6 percent employ them enterprise-wide. A quarter of the companies employ a CKO or a chief learning officer, yet half of them don't maintain a dedicated budget or staff. Slightly more than 20 percent have a communicated KM strategy.

Of the companies that have adopted large-scale knowledge management policies, including Coca-Cola, Ford, General Electric, IBM, Monsanto and Xerox, the CEOs play an active role. Overall, however, only 13 percent of chief executives initiate and direct KM efforts. More than half of them have only limited participation.

"The better knowledge management initiatives," says Brian Hackett, a senior program manager at the Conference Board and author of its report on KM, "are those in which the company understands what the knowledge in their business is -- what it is their business does that's knowledge-based."

So before investing the requisite time, energy and money in KM, it's important to first understand exactly what intellectual capital is all about and how it not only can improve an organization's efficiencies, but also lead to breakthrough ideas. Begin with the sum of the so-called intellectual property of a company -- its patents, trademarks, processes, manuals, drawings, reports, research, technical data and other explicit proprietary information. Add to that historical and ongoing transaction data gathered through customer relations, including best practices and competitive intelligence. Then there's the tacit information residing within every employee's head -- learned skills, intuition, experience and insights -- that comprises the ever-changing knowledge of the work force.

Once you've assessed your intellectual capital, the theory goes, how you put it to work determines the real smarts of a company. "It's hard to identify and harder still to deploy effectively," wrote Stewart, "but once you find it and exploit it, you win."

A FUNDAMENTAL SHIFT IN STRUCTURE

The Information Age operates on the ownership and exchange of explicit and tacit knowledge, both within a company and between its customers. How that happens is the complex nature of knowledge management, especially as it involves the human element. Odd as it might seem to some, the U.S. Department of the Army provided a sensible definition of KM a couple of years ago: "Knowledge management is an integrated, systematic approach to identifying, managing and sharing all of an enterprise's information assets....Fundamentally, it is about making the collective information and experience of an enterprise available to the individual knowledge worker, who is responsible for using it wisely and for replenishing the stock. This ongoing cycle encourages a learning organization, stimulates collaboration and empowers people to continually enhance the way they perform work"