RepuStars and Beyond

Congrats to friend and colleague from IAFS Nir Kossovsky on the November 1 launch of the  RepuStars® Variety Corporate Reputation Index by Dow Jones Indexes.

Increased attention to reputation is good for anyone interested in intangible capital management like I am.

Why is this?

People often think of reputation as tightly linked to marketing. Getting the message right is certainly part of the challenge. But no amount of  effective messaging will make up for a poorly run company.

How do you get a good reputation? By managing your company well. And since 80% of the value of the average company today is intangible, managing your company well equals managing your intangibles well. And you can’t manage intangibles by keeping them mysterious and intangible–you do it by having in place measurement and management practices that enable you to get it right: Read more

Bill Simmons shows his ignorance about the definition of intellectual capital

It probably won’t surprise you to learn that I follow the terms intellectual capital and intangible capital on Twitter and the web (and I highly recommend that you do the same for the search terms related to your expertise).

This morning there is a storm of comments on Twitter about a Bill Simmons post about the NBA negotiations where he says:

I don’t trust the players’ side to make the right choices, because they are saddled with limited intellectual capital. (Sorry, it’s true.) The owners’ side can’t say the same; they should be ashamed. Same for the agents.

I wouldn’t question Bill Simmons on much but I will call him to task on his use of the term intellectual capital. Read more

The Intangible Drivers of Business Value

I was thrilled this month to have the opportunity to give a webinar for Business Valuation Resources on intangibles. I showed the audience the usual slides I often use to show the growth in intangibles in our economy.

The lessons for valuation professionals is two fold:

1. They will be valuing many more intangibles as stand-alone assets in the future
2. But they should already be considering the intangible drivers of corporate value NOW

My talk focused on the second point. Read more

Can you afford the risk? Sarbannes Oxley, Duty of Oversight and Intangible Capital

Anderson Kill has a new article out called The SOX IP Imperative (thanks to Gabe Fried at Streambank for pointing it out).

Authors Gina Hough and Kanishka Argawala make a clear argument about the need for companies to pay greater attention to their intangible assets.

I usually talk about the strategic advantages of such a strategy (and growth, innovation and corporate value that can result). But there is an equally strong risk argument to be made and Sarbannes-Oxley (SOX) is one of the factors influencing this argument. Directors’ duty of oversight that Cathy Reese at Fish & Richardson has pointed out to us before is another factor. Read more

6 principles of management in the knowledge era

We often use the image of a “knowledge factory” to talk about the infrastructure of the today’s business. A huge percentage of this infrastructure is in intangible knowledge assets that work together as a system, the knowledge factory. Once you begin to understand the power of the combination of your knowledge assets, you are on your way to becoming building a smarter company–and you are ready to think about what this model means.

What are the business implications of the knowledge factory? These principles explain why management of a knowledge factory is different than management of a physical factory. Here are the main points, followed by an explanation of each:

1. The KF is greater than the sum of its parts
2. Ownership of the KF is dispersed
3. Power in the KF flows down…and up
4. The KF is held together by reputation, not control
5. The KF runs on information technology
6. The KF is a business

Read more

A Lego Model of a Medical Device Company

Here’s one more example of a Lego model of the knowledge factory of a company. This one is for a medical device company that sells a physical product that is supported by a service. The product is used by consumers in their home. But the company does not have direct contact with the consumers until they call to order the product. Instead the company relies on referral sources. Read more

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. Read more

Modelling the IC of Google’s search business

Google’s search business is a great example of a knowledge factory. While it is driven by highly complex math, the business model developed a decade ago is very simple. It all started with the competencies of two computer science graduate students at Stanford, Sergey Brin and Larry Page. The year was 1995. Page was looking for a thesis topic and was intrigued by the emerging “World Wide Web.” He saw it as a math problem. Brin got involved and by 1998, they had launched Google.

Here’s the story told through the construction of a model of this knowledge factory using Legos.  Read more

Why visualization is so important for intangible capital

One of the big reasons that folks don’t do more explicit thinking about intangible capital is that they have no frameworks or mental models about IC.

We see this disconnect in a lot of businesses. Just about every manager knows that our economy has shifted. They know that knowledge is an important driver of their company’s success. But very few have a vision of how to operationalize this understanding. We believe that visualization is an important first step.

We have struggled with the need for a good visual model of intangible capital over the last decade. Many approaches in use today use diagrams and flow charts to show how all the components of IC work together. But the truth is that there is no one way model that describes every business. that knowledge intangibles are put together in a company. In our client work, our writing and speaking and our continued research, we often help our clients create their own models.

Why do we put so much emphasis on a model? Because models, drawings, graphics are an important aid to clear thinking. They are the visual corollary to stories, which are another powerful form of communication. Every businessperson today is so overwhelmed with data and information that they easily lose sight of the big picture. Visuals help them see it.

We actually used guides on visualization and communication in developing this book. Two books influenced us. The first, Made to Stick by Dan and Chip Heath, helped us come up with the ideas for the ten chapters in this book—breaking down the elements of intangible capital into digestible concepts and making the connection between each and its knowledge-era equivalent. The second, Back of the Napkin by Dan Roam, helped us think about how to represent the elements of intangible capital in a visual way, a journey that eventually led us to the family room of our house and the tub of Lego blocks belonging to our two sons.

We began using the Legos when we were struggling to come up with a way to model a client’s business. We started using the physical bricks. Then we discovered that Lego also has a free drawing tool so now we also create pictures of the models. We start with a knowledge inventory, similar to the one described in Chapter 2. We use a worksheet to assign each of the items on the inventory to one of the four different shapes we have picked to represent the three traditional kinds of intangible capital plus one for products. The only color that has meaning is gold—it is used for any knowledge or product for which a company gets paid. Then we put them all together.

There are a couple ways to approach this:

• Start with competencies. Build the model from there, attaching processes to related competencies then adding relationships.
• Start with your revenue (gold) blocks. Link these with the processes, competencies and relationships together in a way that illustrates how work gets done.

As we work, we try to link related assets directly together. For example, unionized workers (human capital) should be connected to the union (relationship capital) as well as the processes that they support (structural capital). A product needs to be linked with all the processes that are needed to produce and distribute it.

When you are starting out, we recommend that you don’t focus on the support services that each of the businesses have such IT and human resources. Each of these could be modeled as well. One situation where you might want to model support services is when you are doing extensive outsourcing, so that you are clear where the knowledge for that function is coming from.

Over the next few days, we’ll run some examples of models of specific businesses.

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

The Knowledge-Era Plant Tour

When we were bankers, one of the required parts of our jobs was a “plant tour.” Managers would walk a banker (or sometimes a gaggle of us) from the raw materials warehouse along the production lines to the finished goods stocking and shipping departments. Of course, bankers are not manufacturing experts.

We couldn’t really critique the details of the operation. But we could get a sense of the strengths and weaknesses of the operation from seeing the condition of the facility and the knowledge that the manager demonstrated as he or she walked us from point to point. We also got a sense of the workforce and the level of teamwork. Most of all, however, we got an orientation that we could match to the financials we had sitting back on our desks. The tour made the numbers for inventory and property, plant and equipment come alive for us.

Today, when we visit a factory, Read more

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