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

Intangible Capital is the New Factory

The core of the tangible economy is the factory. Simply put, a factory is a building where production equipment converts raw material into finished goods. Companies make their money by selling these finished goods. The story of the tangible economy is the story of organizing and running these factories.

The modern knowledge business can also be understood as a factory, a place where the knowledge raw materials get put to work. This factory is where you create value for customers and make money. The story of the intangible economy is the story of organizing and running the knowledge factory in combination with physical processes.
Read more

Relationship Capital and the Growing Importance of Partners

When thinking of relationship capital, most people default to customers, who obviously are fundamentally important to your business.

However, relationships with other kinds of partners are growing stronger and more important for the same reasons as those described yesterday for customers: increased outsourcing, increased linking of systems and the need for co-creation and innovation. I’ll talk about partnerships in value creation and those that provide support systems for your organization. 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 Do Your Customers Pay You for Your Knowledge?

Last week, I focused on how your company gets paid for its knowledge. Today, I’d like to focus on why your customers are willing to pay you.

This question is all the more acute given my post on Friday about the need to give away knowledge. This fact means that focusing exclusively on how you get paid will force you to miss some of the critical knowledge that distinguishes your organization.

In most cases, your customer is “buying” the whole package whether they pay for it or not, just as Google’s advertising are buying access to the users of the free service. So to understand Google’s search business or your own, you have to understand more than just the knowledge for which they get paid.

To identify the full picture of your critical knowledge, it is helpful then to move beyond the concept of products and services and ask three questions. 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

Your invisible, intangible production facility

What if one day your phone rings, and it’s a colleague who wants to talk with you about a company. This company has been around for decades and has grown steadily in recent years. It has good people. Although it has had a rough time in the last recession, it is holding its own and believes that it will be able to benefit from a strengthening economy. Its market holds promise of innovation and growth…Would you take the call? Does this sound interesting enough that you would recommend a deeper look to you as a potential partner, investor, board member or employee? Read more

The Enduring Value of IT and Process Investments

Yesterday, I had a meeting with some consultants who told me the story of a group of IT and accounting people from one of their clients screaming at each other because they could not find common ground to communicate about the cost and ROI of IT investments.

Then, last night, standing in the parking lot outside the Boston KM event, I had a long chat with an engineer who has been around tech and business for decades. He was very active in the Y2K adjustments (yes, that was a decade ago?!). He volunteered to me that people still don’t have a disciplined way of tracking their IT and processes.

This is one of the big reasons that IT and accounting people end up screaming at each other. It’s not that the individuals are at fault. It’s that they are working in a broken system. Read more

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