August 15, 2011 by Mary Adams · Comments Off
Structural Capital includes the huge range of knowledge that stays in your organization when everyone goes home at night (as such, it’s one of the answers to human capital risk of knowledge walking out the door).
Structural capital can take many forms. At one end of the spectrum is the formally recorded, legally protected knowledge in intellectual property (IP). Next is the knowledge included in software and formal process. Farther along, there is all the other knowledge residing in manuals, instructions, intranets and other written resources. Finally, at the other end of the spectrum from IP is the shared knowledge that is manifested in work patterns and culture which are shared and understood in the organization—but not necessarily written down.
The key risks associated with structural capital include the: Read more
June 25, 2011 by Mary Adams · Comments Off
One of the great strengths of the intangible capital (IC) perspective is the lessons it gives around business model and organizational sustainability. The IC Value Drivers Report for this services company provides a great example of this.
By way of background, IC Value Drivers include ten categories of the intangibles that are create the unique competitive advantage of companies today. Read more
July 26, 2010 by Mary Adams · Comments Off
I did a quick project last week with a professional services firm that had been approached about an acquisition. I sat with the president of the company over the course of a couple days to create a powerful presentation for their initial meeting.
The reason I was asked to help is our expertise in intangible capital. A professional services firm consists almost completely of IC. But most professional service managers (like managers everywhere) don’t have the vocabulary or models to describe their organization’s IC effectively. Read more
July 18, 2010 by Mary Adams · Comments Off
In follow-up to my posts last week about the importance of structural capital and process, I would like to address a story from the press earlier this year (in the Boston Globe, IT Business Edge and IT Knowledge Exchange)
It involves an IT consulting firm that was acquired by EMC. The founders of the firm worked for EMC for awhile and then started up a new firm that EMC says does the same thing as the original company. I won’t comment directly on the case because I don’t have enough information but I would like to comment as background to the issues around buying intangible capital as part of corporate acquisitions. Read more
July 16, 2010 by Mary Adams · Comments Off
This week I have been talking about structural capital–the superpower of today’s organization. And process is one of the most important and least understood in terms of its importance and its sustained value to an organization.
Most internal processes in today’s organizations already have been automated to one degree or other. There are software programs for accounting, enterprise resource management, risk management, human resources management, performance management, and many, many others. That doesn’t mean that this automation is complete. Quite to the contrary, companies at every level still have a multitude of opportunities to standardize, automate and optimize most internal processes in today’s organizations.
And there are also new horizons where automation has only just begun: backward through the supply chain and forward in customer-facing systems. Read more
July 13, 2010 by Mary Adams · Comments Off
Yesterday, I talked about how process can give your organization superpowers. These include processes that support value creation for customers and those that support the internal operations of the company. This list is pretty standard includes infrastructure, human resources, information technology and finance. Each of these functions has its own body of knowledge, competencies and processes. While they are part of the intangible capital of your organization, we won’t spend a lot of time on the details of these classic support systems because these functions are pretty mature.
One support process that is newer and therefore less standardized is knowledge management (KM). This was actually one of the earliest solutions offered by the market in response to the rise of the knowledge economy. The message was simple: If we live in a knowledge economy, we need to manage knowledge. Software and consulting companies sold a lot of people on the concept of KM driven by a faith that if people in an organization could just have access to all the knowledge of their peers, everyone would be smarter and more effective. As often happens with new trends (which always walk the line of fads…) a lot of people thought that this single business function would provide the answer to management in the knowledge era. Check the box and you are a modern company. Of course, this faith was misplaced. This book is a testament to the fact that knowledge and the management of knowledge is about more than a software program.
But that does not mean that KM is irrelevant. Read more
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
Intellectual property (IP) is a term that is usually used to refer to specific types of structural capital that enjoy special legal status. These include patents, trademarks, copyrights, and trade secrets. Each of these categories has a specific body of law associated with it. Patents have to be approved by a national authority. Other categories do not require registration but are still protected under the law.
Legal protection can create a significant competitive advantage, depending on the circumstances. This legal definition and protection can also create opportunities for licensing IP rights outside the corporation. This strategy is getting a lot more attention today from organizations, consultants and software companies.
However, legal protection processes can be expensive and legal protection in itself is not a guarantee of competitive advantage. So, while you want to consult a good attorney to get the intricacies of the law correct, you should also try to also seek the advice of someone that has a good grasp of the strategic role of IP. You want to make sure that you file for protection when it makes sense. This decision involves a cost-benefit analysis. Some of the factors to consider include the cost of filing, the risk of disclosing your invention (disclosure is the only way to identify the idea that your want to protect), the competitive benefit of having a protected idea and the monetary benefit of being able to enforce and/or license your rights to other. Once you win a right, there are the practical and logistical challenges of managing the rights you obtain.
But these special legal systems are not the only way to “protect” your intangible capital. Our friend, Jackie Hutter (she calls herself a “recovering patent attorney”), pointed out to us that contracts are actually one of the most important ways of protecting your intangible capital. Good management of contractual relationships can have a big influence in customer and partner relationships (relationship capital) as well as key employee relationships (human capital) and acquired knowledge (structural capital).
One of the main ways that intangible capital gets protected is through its association with a strong business model. This goes for IP as much as for other kinds of intangibles.
In fact, the power of each of the components of your intangible capital is increased when they are combined with other knowledge components. Intangibles are a great example of the saying that “the value of the whole is greater than the sum of the parts.”
While someone could steal or imitate specific aspects of your business, it is hard to duplicate the whole system. This is a major way that most companies attain and retain competitive advantage—and protect their IP. This is important to keep in mind because many in the IP community will try to tell you that the only intangibles of any value are IP assets. We strongly disagree, which is why we have taken so much time to explain all the elements of intangible capital.
We actually created a pretty big controversy when we drafted this content for our book. When we started out, we intended to define all structural knowledge as intellectual property. When we consulted colleagues in the business and legal communities on the draft, we got some strong support and some equally strong pushback. The conversation spilled over to Twitter and Mary’s blog which had a record number of comments on a post called, “What’s the right definition of intellectual property?” The message that we wanted to communicate is that all intangibles are important and legal protection is just one of the strategies to protect your intangibles. However, it became clear to us that insistence on this definition was going to distract a lot of people from the core messages of this book. So we backed down.
So our advice is to leave the term intellectual property to the lawyers. But do not leave the protection of you intangible capital to just a legal strategy. Come to understand and protect your intangible capital as a system. Remember the lesson of knowledge economics. The highest value knowledge is knowledge that has been operationalized, put to work. The way that this usually occurs is actually through the creation of processes.
Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak
July 7, 2010 by Mary Adams · Comments Off
Organizational knowledge is a more explicit form of structural capital than culture but, like culture, can be hard to pin down.
This is all the knowledge that is captured and recorded in your company. This means that every product design, every process map, every training manual, every formula, every document, every email, every entry ever made in a knowledge management system is part of your organizational knowledge. It includes all the knowledge that is being captured from your human and relationship capital. And capturing it is an important first step to the process of leveraging it. Read more
July 1, 2010 by Mary Adams · Comments Off
Culture is the least tangible of the structural capital assets. It can be hard to define but everyone knows it is there. Culture can be a productive or a destructive force within an organization. In general, a culture is what it is—and can be especially hard to change. As a starting point, it is important to be able to describe the basic features of a culture as a first step to self-knowledge.
In the IC processes that we use to map out the intangibles of organizations, Read more