Nasty Surprises

The news has been full of nasty surprises in recent months. Troubles at financial institutions. Surprise losses at Southwest Airlines from fuel price hedges. Lead paint on toys sold by Mattel.

Of course, all these surprises have external causes but that’s not enough of an answer or an excuse. It would be very dangerous to write off the many nasty surprises facing us today as out of the control of the companies involved. There are plenty of lessons to be learned.

That’s why, in each case, it also makes sense to look internally as well. As a proponent of the power of intangibles information, I cannot help but wonder whether stakeholders like investors, boards and financing partners have been asking the wrong questions about their intangibles (people, networks and process).

The first place most people look when there is a crisis is at the people. People do play an important role, and the rise of the knowledge economy makes them more important than ever. The competencies of the workforce, their motivations and culture all influence what happens at a company.

If stakeholders want to be proactive and truly understand how an organization works, they need to ask specific questions about the core competencies, training, culture and compliance of the workforce (a perspective that would have been applicable at any number of financial institutions).

Networks continue to grow in importance. Organizations are outsourcing more and more of their business processes. These business models breed greater dependence on the strength of relationship capital with re-sellers, vendors and customers.

Stakeholders need to ask specific questions about the key relationships in a company’s network, how the relationships are managed, and how partner compliance to the organization’s standards is controlled (think Mattel and lead paint used by a supplier).

The biggest one is process. Process is the knowledge era equivalent of the production line. Processes are the way that companies institutionalize their knowledge and turn it into a money-making proposition. Good processes allow a company to scale, especially when computerized-processes for trading-processes for customer service-processes for risk management-processes for supply chain management.

Stakeholders need to ask whether key business processes are documented, how compliance is controlled, what kind of training employees get, how risk is managed, and whether the process is audited (think financial institutions, Southwest, Mattel and just about every other nasty surprise in the news lately).

The current rash of nasty surprises tells us that managers and stakeholders are not always paying the attention that they should to intangibles. They need to ask better questions and demand better information about all the components of intellectual capital. To succeed in the knowledge economy, we all need to get better at asking questions about intangibles.