Horizontal or Vertical: two views of the organization—which is right?

One image that we have used
over and over again in recent years to explain the managerial implications of
the knowledge era is depicted in this graphic. It is an abstraction of the
organization chart. Like an organization chart, the triangular figure is wider
at the bottom where there are more people at the bottom working in units or on
projects. There is a management level that connects the “worker” to the
corporate or executive level. As you will see throughout the coming chapters,
the shift to the knowledge era is necessitating greater emphasis on the bottom
of this triangle. Read more

The Superpower of the Knowledge Era: Process

Process is not new to business. In fact, process in the form of production lines was a critical driver of the growth of the industrial economy. In a factory, you could see the physical movement of raw material as it moved from the warehouse into a series of production lines with finished goods coming out the other end. The movement of goods, and the productivity of the machines and the output of the entire factory could be tracked. Accounting and operational systems made it possible to measure everything from the purchase of the land to build the factory down to the last widget being put onto a truck. It also, by the way, made it easier for bosses to identify the best way to do a task and mandate the work patterns of their workers.

Much of what is today views as “best practices” in management comes from the factories of the industrial era.

But today, a lot of process occurs inside of people’s heads, their computers and networks of computers spread across a building or across the globe. Read more

Relationship Capital, Starting With Your Customers

As with human capital, relationship capital has always been a part of business.

Organizations have always had customers, vendors and financing partners, to name a few. But the nature of these relationships has been changing more dramatically in recent years. First of all, networking technology has made it easier to outsource pieces of a business that were formerly inside the corporation. The relationships with critical outsourcing partners are closer than that of arms-length client-vendor relationships.

You may find yourself on both sides of this dynamic, performing outsourced services for your customers but also outsourcing some of your internal processes to a vendor. Read more

The Two Families of Organizational Assets in a Knowledge-Era Organization

As we begin to broaden our discussion of intangibles, there is a distinction we want to make about the organization of businesses. It is inspired by the Value Chain graphic created by Michael Porter back in 1985. Read more

Why Innovation in the Knowledge Era Will Change Everything

In my recent post about innovation ecosystems, you may have noticed two of my introductory slides about the knowledge era and innovation. I’d like to expand on that here.

This graph is taken from PBS’ The First Measured Century (a fun resource if you have never seen it). It’s a snapshot of employment trends (of men only) in the 20th century, the story of which was clearly dominated by the industrial era. Read more

Knowledge is the New Oil

—
Oil
It is hard to imagine the tangible economy without oil. It fuels our cars and trucks. It generates electricity to power our factories and homes. It serves as a raw material for products we use everyday, from plastics to fabrics, fertilizers, and high tech materials. These many uses for oil have made this commodity a source of great wealth.
—

Like oil, knowledge is both a product and a raw material. It is an abundant asset that is a part, directly or indirectly, of everything we use. And it can make you very rich. Knowledge has already made many people rich. Just ask Bill Gates and Paul Allen, the founders of Microsoft. Or ask Sergey Brin and Larry Page, the founders of Google. These are the modern day wildcatters, striking it rich by finding a new oil field with an essentially infinite supply. These wildcatters are a great illustration of the fact that there is a role for both luck and smarts in the knowledge business, or any business for that matter. But the story goes much deeper than these few success stories. Read more

Three Ways to Adapt Your Organization to the Knowledge Era

The knowledge era is here to stay. But most organizations have not yet completely caught up with this seismic shift. In our new book Intangible Capital, we address three ways to think about adapting your organization:

The New Factory focuses on the performance of your intangible capital. The New Management is about driving innovation in your organization. And the New Accounting explains the link between intangibles and the financial performance and valuation of your business. These images and concepts describe the knowledge-era equivalents of familiar basics in business. We are not advocating the abandonment of the existing basics but, rather, supplementing your existing practices with new ones better suited to the knowledge side of your business.

The New Factory introduces knowledge as a business asset. It’s actually a very flexible asset and can take many forms: as a product, as a raw material and as an engine for the growth of your company. This section explains the economics of getting paid for knowledge (and sometimes giving it away) and how knowledge becomes a raw material for your business through three basic classes of assets: human, relationship, and structural knowledge capital. You’ll learn that structural capital is the most powerful knowledge asset because it is infinitely scalable and repeatable. But that in order to use and monetize any of these assets, they need to be combined in a system, what we call the knowledge factory. We’ll show you how to build a model of your knowledge factory that will help you in thinking how to measure, manage and  maximize the performance of your organization’s knowledge. 

The New Management introduces the layers of networks that make up the knowledge factory and that limit the usefulness of traditional management tools like organization charts, strategic planning and managerial controls. By definition, knowledge is spread throughout your knowledge factory. That means that you need to learn to “manage” information flows from the bottom up and outside in. Nowhere is this more necessary than in the area of innovation where your challenge is to facilitate the development and implementation of new ideas from all levels of your organization as well as your customers and external partners.

The New Accounting explains how today’s businessperson is hampered by lack of information about the knowledge factory. Knowledge assets are not captured in accounting systems and are almost invisible in other conventional forms of management information. We will introduce you to strategies to remedy this situation through the creation of simple reports about the cost, strength and performance of your knowledge factory. You can use these reports immediately to support your internal management. We will also prepare you for the day when you use this kind of information to communicate with external stakeholders including investors, bankers, partners, customers and even employees to increase the valuation that they assign to your business. We end by explaining how your reputation is dependent on the success of the management of your knowledge factory. It holds your factory network together and ensures that your factory will be able to grow and innovate heading into the future.

It is this possibility of performance, innovation and valuation that we hope will lead you to adapt your thinking and your management approaches to the knowledge era.

From Intangible Capital: Putting Knowledge to Work in the 21st Century Organization

About the Authors of Intangible Capital: Putting Knowledge to Work in the 21st Century Organization

We (Mary Adams and Michael Oleksak) are both former bankers who began our careers just as the IBM PC hit the marketplace in the early 1980s. That was actually the moment when a discernible “extra” value became visible in the public markets over and above the book value of corporate assets. In hindsight, economists now tell us that this was when the knowledge era began to take off. We, like all businesspeople today, have lived with feet planted in both the industrial and knowledge eras. At Citibank and Bank of Boston, we each received training in state-of-the-art business thinking. But as time went by, it became clear that there was something else going on. The old formulae didn’t work. Assets wouldn’t cover the loan amounts companies needed to fund their operations. It was only later when we had started a consulting firm in the late 1990s, that we came to understand the shift that was underway.

Then over five years ago, we were introduced to the emerging field of intangible capital. We started an informational website, the IC Knowledge Center, and a newsletter (here’s its current incarnation) that became our way of continuing (and sharing) our learning. We also began to apply the concepts in our client work, helping technology and service companies to grow and adapt to changes in their markets. We began to see a lot of trends that have been emerging in recent years—social networking, innovation, performance and knowledge management—as threads of the same story. Eventually we felt compelled to write a book to pull all these threads together.

This is not the first book we have written together. We met and lived in the Dominican Republic over 20 years ago. At the time we were intrigued by the growing prominence of Latin Americans in baseball. We were upset when we would see sportswriters speculate (often incorrectly) on how and why baseball spread to different countries. When we couldn’t find a book on the rich history of this aspect of our national game, we decided to write it ourselves. With Beisbol, we helped set the record straight and start a new thread in the history of baseball.

This book isn’t all that different. We have lived with our clients the urgency of being able to measure, manage, and monetize intangibles. We have seen what works. But we haven’t been able to find a book that explains this in a clear, practical way. We felt we had no choice but to do it ourselves. Our hope is to get this information out to a broader audience and contribute to the important conversation about how to stimulate innovation and growth in our economy.

The ideas we express here are grounded in the best and most current research. But everything is filtered through the lens of our experience—and that of our clients—as to what really works. Our goal is to arm you with understanding and perhaps more importantly, practical tools and applications to help your organization succeed in the knowledge era.

From Intangible Capital: Putting Knowledge to Work in the 21st Century Organization

The Moment is Now to Leverage Our Knowledge Intangibles

Intangibles make up 70% of the value of the average company. They drive competitive advantage. They determine the innovation capacity of a company. Yet they continue to be ignored.

And now we are at a moment of truth. Our economy seemingly made huge progress in the past decades. Computers created efficiencies and fueled profits. They also enabled many white collar jobs to be moved off shore along with manufacturing work. The economic consequences of this outsourcing and the mothballing of so much of our economic infrastructure were hidden by a series of economic booms in the 1990’s and early 2000’s. Then the “Great Recession” of 2008-09 exposed the fact that our economy was running on consumer spending fueled by financial profits that have long since disappeared. Today, we lack sources of job creation and true economic growth. Add to this economic challenge the even greater ones created by serious concerns about our environment, our energy use, our health care system, even our food production. We are in a very difficult position. Read more

The Dangerous Secret of Our Economy: The Intangible Information Gap

Although intangibles are more and more important, few companies can provide a description of their own knowledge factory. Nor can they provide an inventory of its critical components. How much it cost to build, maintain, and operate the factory. How well it is performing. The knowledge factory is essentially invisible in most companies.

Experts estimate that easily half, probably much more, of the value of American companies is held in this knowledge factory. This factory has been built through steady investments that were at least equal to the investments made in tangible production capacity in recent decades—and probably much greater.  Read more

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