Another Lego IC model: A Specialty Contractor

With the Google model, we told the story of how the company developed and built its knowledge factory starting with human capital.

But to model the IC of an established business, it often helps to start with how a company gets paid. This gets the focus directly on the value creation process and also ensures that the model is of maximum usefulness—making that direct link between IC and financial results.

The example described here is one of the largest commercial flooring contractors in the U.S. Here’s how we modeled their business:

1. We started with the first of the two golden pieces for how they get paid, this one for the flooring products they sell.
2. To be competitive, the company needs to buy its flooring products directly from the mill (relationship capital), so you see that the product is connected to this category of relationship capital.
3. Purchasing needs to be handled with a disciplined process (structural capital) to make sure orders are made in time, that the mill gives them the same pricing that they quoted on the phone, and that the materials are in the warehouse.
4. The purchasing should also be handled by staff with the right competencies and experience (human capital).
5. The second golden piece is for the other way the company gets paid, the markup off the cost of its labor (human capital).
6. Because the workers are unionized, their pieces are attached to the union (relationship capital).
7. The workers are managed through a scheduling system (structural capital)
8. Field supervision involves a certain set of competencies and experience (human capital).
9. The installation and purchasing functions are connected by the project management processes (structural capital).
10. These processes are in turn supported by the project management competencies of its salespeople (human capital).
11. It is through the salespeople the company connects with general contractors and building owners that are the company’s customers (relationship capital)

Can you see why we call this a knowledge factory? Every business has a system that runs on human, relationship and structural capital. If you want to understand how the company works, how healthy it is and how it is performing, you need to first understand this system.

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.