Holistic IC Management
June 13, 2012 by Mary Adams
I have been increasingly coming to understand that one of the key implications of intangible capital theory is that knowledge should be managed holistically. This morning I shared that thought on Twitter and had @JoannaHiggins ask, “what does that mean in practice?”
I tried to answer in 140 characters but couldn’t do it yet. So here’s a longer answer:
The theory of intangible capital (with roots in the intellectual capital movement in Europe and Japan) says that the driving force for organizations today is knowledge. Further, while knowledge is a ubiquitous and dynamic resource, it is possible and helpful to identify the key sources of knowledge in the organization. And, finally, the key to leveraging knowledge (whether your goal is growth, performance, innovation or value) is to manage these sources of knowledge holistically:
- Human Capital - This includes all the talent, competencies and experience of your employees and managers. This is the intangible capital that “goes home at night.”
- Relationship Capital – This includes all key external relationships that drive your business, with customers, suppliers, partners, outsourcing and financing partners, to name a few. This kind of capital also includes organizational brand and reputation. Due to the growing importance of networks in organizational structures, this is also sometimes called Network Capital.
- Structural Capital – This includes all knowledge that stays behind when your employees go home at the end of the day. There is significant structural capital in today’s organizations including recorded knowledge, processes, software and intellectual property.
- Strategic Capital – This is a category that is not always included in academic definitions of IC. However, in our experience, this category of knowledge is the necessary complement to the others. It includes all the knowledge you have of your market and the business model that you have created to connect with market needs.
(see a graphic explanation of IC)
What does this mean in practice Joanna? It means that
- Management and team members understand their IC. They have an inventory of their key intangibles and an understanding of how the elements work together in an integrated system
- Key decisions on investment and deployment of intangibles look at how the decision affects all four elements of IC, not just one
- Experts in one area also have an appreciation of the system and work cooperatively to ensure their work contributes to the health of the overall system.
By the way, these concepts apply to whole organizations, to functional teams, to virtual teams as well as to individuals. The value of knowledge is determined by its context—how it fits into a system that includes all four IC elements.
I welcome feedback, Mary