The Holy Grail of the Knowledge Economy: Structural Capital

If you understand human and relationship capital, you can start a business. If your business creates value for your customers, you can earn a good living. But you will never grow large or particularly rich with just these two kinds of knowledge assets. This is because the real promise of the knowledge economy comes in the creation of structural capital, that is, knowledge that gets captured and institutionalized in an organization.

When people say that “all our assets walk out the door at night” they are showing their ignorance of structural capital. Read more

Four Ways of Understanding Employees As Human Capital

Every human being is different. As employees, human beings bring unique talents and abilities to their employers. This diverse skills set brings a richness to an organization that can be difficult to capture. Do not let this richness keep you from trying to understand your human capital as a productive asset. There are actually some very clear ways of describing employee groups:

• Competencies
• Experience
• Longevity
• Attitude

Read more

The Central Importance of Human Capital

Knowledge in an organization begins and ends with people. The knowledge and experience that employees bring to their work is probably the greatest driver of an organization’s success. What employees know helps to build an organization as well as to preserve, maintain and improve it.

This importance is generally accepted. It is rare to meet a CEO who won’t tell you that his or her organization has the “best people” in the market. But this kind of statement is rarely challenged. Most businesspeople still don’t know how to see beyond the people and understand the employees and managers of an organization as knowledge assets—as human capital.

There are some that are critical of the label “human capital.” To them, it seems to smack of an attitude that people are just nameless cogs in an organization, exploited for their knowledge and experience. We don’t share that view. In fact, we like the term human capital because it is a graphic statement of the fact that people are indeed an asset of the organization. Assets require investment and maintenance. And they are a critical part of the productive capacity of the organization.

To us, this is the realization that matters—that your people are part of your productive capacity, now more so than ever. Because the future of your company depends on what you know rather than what you own. And what you know as an organization is intimately tied to the knowledge and experience of the people in your organization. In looking at human capital, it is helpful to distinguish between employees and managers. Both groups are employees but managers need a set of competencies that is distinct from those required for your value creation processes–I’ll look at each in the next couple posts.

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

Intangibles Are the New Raw Materials

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Raw Materials
In the tangible economy, raw materials are combined and sometimes transformed to make finished goods. It is often impossible to see the different raw materials in the finished product—together, they make something completely new. In fact, there is often a progression of processes that lead to a final product. Stalks of wheat, for example, are processed and ground to make flour which then goes into making bread. Grains of sand become silicon in computer chips and oil becomes a high tech plastic.
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The raw materials of the knowledge era are knowledge-based intangibles. You may be nodding your head as you read this. But do you really know what it means? If not, you are not alone. Knowledge continues to be seen as an amorphous, misunderstood part of business. This widespread ignorance isn’t helped by the vocabulary. The word intangibles itself is troubling because its very definition implies that an intangible is invisible, untouchable, and unknowable. The word knowledge is also very general and lacks a specific connotation for business value creation. Yet knowledge is the core asset of this century. Read more

The Dilemma (and Power) of Free

In recent days, I have focused on getting paid for what you know. But, of course, there is another big story in the knowledge economy—one that is still being written. Basically, one of the challenging truths of the knowledge economy is that you will end up giving away a lot of your knowledge.

Google’s search business is the simplest but most dramatic example of this. Their search business yields $20+ billion in advertising revenues each year. But the core product, the search itself, is free. This means that Google gives away huge amounts of value every day and still has managed to become one of the leading companies of the knowledge era thus far.

Another great example is the Grateful Dead. Read more

Getting Paid Indirectly for Your Knowledge

For all the attention that we have paid to this point to direct sales of knowledge, many companies still get paid just for providing physical products. No services. No knowledge product. But don’t be fooled. These companies (or at least the ones that survive) get paid for their knowledge as well.

This is very obvious in an iPod, which is a highly innovative delivery system of an on-line music service. Apple broke ground in many ways when they created the iPod including: Read more

Getting Paid for What You Know: Knowledge Products

We talk about intangible capital a lot. We even wrote a book on it. But we know that a lot of people think that IC is a very abstract concept. It’s not. It’s at the very heart of how you create value for your customers and get paid for it.

Your company already has extensive knowledge. The question is how you package this knowledge in a tangible form that has economic value. In order to understand your business as a knowledge business the best place to start is with your revenue line. What does it say there? What do the bills to your customers or clients say? Are you selling them a knowledge product, a physical product, a service, or the time of your employees? Read more

Knowledge is a fundamentally different kind of economic asset

You have probably heard of the the Knowledge Era. You know that we shifted from the Industrial to the Knowledge Era sometime in the recent past. What you may not understand is the implication of this shift for economics–and for your own organization.

The big difference comes from this simple fact: Knowledge is infinite. Yes, you heard me correctly. Knowledge is an infinite asset. Giving it away or selling it does not diminish your supply of knowledge. This infinite nature of knowledge conflicts with one of the most basic assumptions of the economics that most of learned in school: Read more

Knowledge starts as a commodity…how it ends up depends on how it is packaged to meet a market need

The first thing to understand about knowledge is that, like oil, it is almost like a commodity, widely used and widely available. You could almost describe it as a natural resource. This resource is widely available in any library, on the Internet and given away regularly on television and in public schools.

There is no more graphic demonstration of this than the recent launching of the MITOpenCourseWare website by the Massachusetts Institute of Technology. Read more

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

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