Managing Intellectual Capital for Strategic Advantage
Since the advent of computers and information technology, the nature of the enterprise has changed. Nowadays, we have developed different methods and skills than those of our predecessors in order to access our customers and provide them with goods and services. These new skills have been developed as a result of information technology, telecommunications technology and the requirement for a more sophisticated work-force which relies on expertise and technology more than manual labour. ‘Teleworkers’ now enable enterprises to operate at greatly reduced cost, with fewer offices, fewer meetings rooms, reduced travel and savings in time and money. To provide such services we have produced employees with new skills. Their know-how is frequently a long time in the making.
Training is one way in which the value of an individual to the organisation is developed and maintained. Corporate training is subject to fashion trends – currently the Learning Company and Life Long Learning. The former – where the organisation sees itself as a mechanism for nurturing employees, the latter where the organisation sees itself as the customer of the individual employee and his expertise. Both have merit but only in conjunction with an understanding of the company’s strategic goals.
The more a company grows, the greater its accumulated knowledge. Or so it ought to be. Yet the more complex an organisation becomes, the more difficult it is to keep track of just who knows what and the greater the chance that potential value is being lost. Every time we lose an employee we lose a chunk of corporate memory. Despite the fact that the organisation pays for people – their assets – by way of salary and invests in them by way of training, fast track plans etc., the employee is not owned by the organisation, which is powerless to prevent its employees pursuing life-threatening hobbies every weekend such as bungee jumping or pot-holing! Just think what the loss of one key player is to a firm employing 20 people, for example.
To safe guard a company’s future business performance and prosperity systems are being developed to acquire and disseminate intellectual assets and to increase the generation of useful, actionable and meaningful information. This is being known as Knowledge Management (of Intellectual Capital). Knowledge Management maintains that successful businesses are not a collection of products, but of distinctive knowledge bases. The key to success, therefore, is developing intellectual capital in areas that will give the company a competitive advantage to create unique core competencies that can enable distinctive products that will build superior results. Knowledge Management seeks to increase both individual and team learning, as well as to renew and maximise the enterprise-wide value of an organisation’s intellectual base. The problem Knowledge Management poses is that knowledge, as distinct from information, cannot be directly managed. It is only possible to manage the environment in which it is created and sustained.
Knowledge Management requires managers to:
· Catalogue and evaluate the organisation’s current knowledge base
· Determine the competencies that will be key to future success, and identify the knowledge bases that can build sustainable leadership positions in these competencies
· Invest in systems and processes to accelerate the accumulation of knowledge
· Assess the impact of such systems on leadership, culture and hiring practices
· Codify new knowledge and turn it into tools and information that will improve both product innovation and overall profitability
· Improve the dissemination of knowledge throughout the organisation
· Apply new knowledge to improve behaviours
When business process re-engineering was at its height, and down-sizing was the trend to follow, organisations began to learn that knowledge was not just something that was owned and controlled by the company – it was a factor that walked out of the door when staff were laid off. So, while a company might be good at cutting inefficient, repeatable processes (“explicit” knowledge), its ability to respond to change was reduced – something at which the “tacit” human brain excels. Knowledge Management is seen as replacing Business Process Re-engineering as the major driver of corporate change.
Knowledge is seen as a continuum from tacit to explicit. Explicit knowledge is easily captured and stored on paper or in computer systems (i.e. ISO 9000) and can be applied to solving predictable problems. Tacit knowledge is held in the head of the individual, making it more readily applicable to new circumstances.
“It’s not what we do, it’s the way that we do it!”
Tacit knowledge arises through experience in which training and procedures/rules are a part, but far from sufficient conditions for its creation. Tacit knowledge is very powerful, in that its use by a truly knowledgeable person enables rapid and sophisticated decision making in complex situations/environments. Decisions are the means by which knowledge is revealed. It is suggested that tacit knowledge can be managed and is a source of competitive advantage.
Knowledge exists in various forms: tacit, explicit, individual, organisational, social, administrative, technical, scientific. However, an individual’s knowledge (within an organisation) can be categorised into three elements:
· Know-how – relating to operations, production, logistics, continuous improvement systems …
· Know-what – relating to customer needs and use of firm’s products or services. Understanding what the firm might do with its available competencies or competencies it conceivably could develop. Sales force management, market research, customer service and new business development
· Know-why – is fundamental knowledge of the business as a system. Understanding of competitive advantage, industry economics, innovation, competitive intelligence and strategic thinking. May be tacit or explicit.
Research and discussion so far lead to the following propositions:
1. Knowledge-based competitive advantages can arise from core competencies developed through management of one of the three types of knowledge (above), or through their co-ordination.
2. Co-ordination of the three types of knowledge requires management of their development, application and interactions over time. Appropriate dynamic sequencing and phasing to lead to competitive advantage depends on the nature of the product or service, industry, stage of market and organisational life-cycle.
All the above contribute to Intellectual Capital along with actual intellectual property rights and assets. Methodologies are being designed to create an Intellectual Capital Index and a Balanced Scorecard which will be ways to measure or benchmark a company’s efficiency in using/capturing their intellectual capital. There are also moves a foot with the Balanced Scorecard to be able to use this to give a financial figure for IC within a balance sheet. It is said that the companies of the third millennium will have few tangible assets but have all their ‘assets’ tied up in the heads of their employees (e.g. Microsoft) and there will be a need to review accounting practices to take this into account.
Learning and the leveraging of knowledge are increasingly seen to be the keys to business success. Jack Welch, chairman and CEO of General Electric, attributed his group’s success and growth to a financial model, which has at its heart cultural values that add up to the ‘Learning Organisation’. Organisational learning, knowledge formation, storage and use are dynamic processes. It is my belief that many companies miss the true focus of Knowledge Management by treating knowledge as a commodity. Strategic advantage through the use of intellectual capital will not be achieved unless organisations embrace the concepts of ‘organisational learning’ to drive ‘core competencies’ and create ‘communities’ where people can build trust to share knowledge and … using knowledge audits and innovation as the keys.
Copyright: Dr Deborah Swallow
Dr Deborah Swallow is a professional speaker, consultant and author on Creating Value Through Cultural Diversity. Her doctorate was on the topic of cultural barriers/impact on Transferring Knowledge Across Cultures.