Member Blogs

There were people from 40 countries who attended International Conference on Intellectual Capital and Knowledge Management (ICICKM) in DC last week. As always, it was great to see old friends from our community.

Our contingent included Xiaomi An, LinLin Cai, Paul Okeke, Dan Paulin and Paul Tolson who all presented great papers. Jon Low and Debra Amidon gave the keynotes. And the current, past and future co-chairs of ICICKM were all present: Annie Green, Vincent Ribiere and John Dumay. Our ICountants Melanie Sutton, Jodie Cohen-Tanugi and I were there carrying the ICounting flag (Melanie gave an amazing presentation that we filmed and will share later). [if I missed anyone, please let me know and I'll get you in the list!]

The thing that I always come away from these events with, especially so this year, is the thought that there are so many people all trying to tackle the same challenges all across the globe. These occasional conferences are good. But to really change the world, we need to turn it into a more continuous conversation (don’t ask how many times I asked people to post their work to our community:)

Some papers that caught my eye:

• IC of universities (especially because we have a Graphs project starting with a university in November)
• A paper about Collective Intelligence (CI instead of IC!) that examined the workings of three on-line citizen communities in Lithuania—glad to see this line of thinking in the IC world.
• An individual-centred model of intellectual capital
• And many more that all continue to contribute to the overall conversation about IC.

I had a number of great conversations with John Dumay about his plans for next year’s conference in Sydney. He plans to encourage more practitioner cases and Melanie Sutton’s great presentation made it clear that we practitioners bring a lot to the discussion.

The best thing about these conferences is that I return to my work energized that we are a much bigger movement than any of us (or anyone else) realizes. Let’s keep working!!

(apology to readers and note to self: you’re carrying around several devices with cameras. please take pictures next time)

Words matter.

They shape our thinking and shape our conversations.

Here are some really common conversations I have with new business acquaintances:

I ask what they do. They ask what I do. I say (of course!) that I work with intangible capital. Some people ask what I mean by that. Most immediately add their own mental interpretation of what I mean by “intangible capital:”

…If they work mostly with the law (and sometime technology), they say, “Oh, like intellectual property!”

…If they are accountants or financial types, they say skeptically, “Oh, like Goodwill…”

…If they are bankers, they might say, “Oh, like intangible assets? We don’t lend on them.”

…If they are in marketing, they say, “Oh, you mean brand and reputation!”

…Many business people say, “Oh intellectual capital, that’s tied closely to people…”

And so on. The point is that it can be hard to talk about intangible capital when people bring so many preconceptions to the conversation. That’s why we often use the Blind Men and the Elephant example. In this poem, each blind man feels a part of the elephant and makes an assumption about what the whole elephant looks like. That’s what happens with intangibles. Most people are trained to just look at one part and they miss the significant of the whole.

And the whole is really important. 80% of the value of the average business today is intangible and yet mainstream business continues to dismiss intangibles as soft and/or unknowable. I guess I really don’t care what word people use but I do hope that people will develop a holistic understanding of intangible capital.

...It’s not just IP. It’s not just people. It’s not just knowledge or data. It’s not just brands or relationships. It’s not just culture.

...It’s all these things working together in a dynamic, social system. Intangible capital requires holistic thinking and holistic management. And it works best when there is a shared understanding of collaborative advantage.

Good intangible capital management fuels growth, innovation and performance. Don’t be a blind man (or woman). Start looking at the big picture before the elephant stomps all over you.

This drawing was done by Collective Next in Boston.

Intangible Capital. Intellectual Capital. Intangible Assets. Intellectual Property. These phrases get used a lot and many people think they are the same thing. This post is intended to help you understand the difference. Our objective is to provide clarity to our terms and correlation to the impact IC has on business results.

The study of intangibles emerged as a field in the 1990’s to explain the significant shift in our economy and businesses as knowledge became the key competitive advantage in the global market. This shift reversed the historical pattern of tangibles accounting for 80% of total corporate value to the exact opposite today with the value of the average company today being 82% intangible. How to describe this critical asset class? The field is still emerging and as such, there can be confusion about the meaning and usage of different words and phrases.

The terms intangible capital, intellectual capital, intangibles and intangible assets are often used interchangeably. Although we prefer the phrase “intangible capital” because it has a more precise definition (see below), “intangibles” is also frequently used. Below, for your reference, are some definitions of these and related terms:

INTANGIBLES / INTANGIBLE ASSETS

Strictly speaking, the definition of “intangible” comes from the field of accounting. Intangibles are organizational resources that do not appear on the balance sheet. On average, more than 80% of the value of today’s public corporations is intangible.

This phrase is both our friend and our enemy. It orients people that we are talking about assets and resources that are not tangible. But it also feeds into the broad misconception that intangibles are unknowable and unmeasurable. Nothing could be further from the truth (which is why we wrote Intangible Capital).

Why do we not find a different word? Well, as tempting as that sounds, it wouldn’t solve the problem. Accounting standards and norms are critical foundations of our economy. We have to find ways of orienting people within their own experience. So when talking about intangibles, let’s start with what people know and help them learn and expand their understanding from this base.

INTANGIBLE CAPITAL (IC)

This is a phrase and a concept that comes out of the study of intangibles in an organization. It takes people beyond the strict definitions found in accounting and takes a fresh look at what is going on. Basically, the rise of the importance of intangibles is part of the story of the end of the industrial economy and the rise of the new economy based on information technology and the internet. In this new economy, knowledge, connections and collaboration are the key assets driving growth and performance. To paraphrase Baruch Lev, there is no tangible asset today that is more than a commodity. The unique, the valuable part of business comes from how tangibles are used, how work is done, how the future is innovated.

The field of IC has identified four main categories of knowledge intangibles, each of which has a different character. It is important to understand individual intangibles as well as how they work together as a whole:

• Human Capital - This includes all the talent, competencies and experience of your employees and managers. This is the intangible capital that “goes home at night.” More on human capital
• Relationship Capital – This includes all key external relationships that drive your business, with customers, suppliers, partners, outsourcing and financing partners, to name a few. This kind of capital also includes organizational brand and reputation. Due to the growing importance of networks in organizational structures, this is also sometimes called Network Capital. More on relationship capital
• Structural Capital – This includes all knowledge that stays behind when your employees go home at the end of the day. There is significant structural capital in today’s organizations including recorded knowledge, processes, software and intellectual property. More on structural capital
• Strategic Capital – This is a category that is not always included in academic definitions of IC. However, in our experience, this category of knowledge is the necessary complement to the others. It includes all the knowledge you have of your market and the business model that you have created to connect with market needs. The driving force behind Strategic Capital is purpose. It also includes culture. Culture and purpose are the glue that holds the rest of IC together. More on strategic capital

INTELLECTUAL CAPITAL / INTELLECTUAL PROPERTY

Some people use the phrase intellectual capital instead of intangible capital.

We prefer to use “intangible capital” rather than “intellectual capital” for two reasons: 1-intellectual sounds too elitest–intangibles are real and practical so let’s not make them sound inaccessible and 2-people often confuse intellectual capital with intellectual property.

Intellectual property is a specific type of intangible asset that can be protected legally through copyrights, trademarks and patents. It is a subset of Structural Capital. Many people think that intellectual and intangible capital is primarily intellectual property. Hopefully, this discussion helps you understand that there's much more to the picture!

This essay was written for a book to be published later this year in Italy by Smarter-Companies member Andrea Gasperini. We'll share a link to the book when it comes out!

I write this essay as we enter the year 2013. A new year is a popular time for predictions. There’s always risk in trying to make predictions but I welcome the opportunity to sketch out some of my ideas as a way to add to the collective conversation about the field of IC.  To do this, I’ll use the basic journalism questions we were taught in school:

Who is going to drive the future adoption of IC ideas? I believe consultants are the key.

The basic definition of IC includes many categories of knowledge—human, relationship, structural and strategic capital. This definition suggests a holistic vision of organizations. Today, only the CEO takes charge of such a holistic vision. Yet, the CEO cannot do the work of developing and implementing IC concepts. The same goes for the COO and CFO, two other managers who have a broad vision of the organization.

Consultants, on the other hand, get paid to bring new ideas to companies. They have the flexibility, time and ability to organize projects aimed at driving change and improvements (assuming they are hired to do so). So consultants will be key change agents 

In the long run, however, I do not believe that any one person will be responsible for IC. That's because IC will be everyone's job.  Everyone in business will have to have some basic skills in what I like to call ICounting. ICounting will be a skillset, not a job.  And at the beginning, consultants will be important in introducing this skillset to the market.

What will be the character of the IC ideas that are adopted? Simple and specific.

The IC community has done amazing work to develop concepts and frameworks for the knowledge intangibles that have become the core asset class in organizations today. But intangibles are not an easy subject and too many of the solutions are complex and theoretical.

Management teams don’t have time for a lot of theory. They need relevant and actionable information. To me, this suggests that most of the conversation with management teams needs to be about their own unique intangibles. This is why my company has offered two simple tools as open source methodologies:  The first is the ICounts Index which helps business people determine the relative importance of tangible vs. intangible assets in their own companies.  The second is the ICounts Inventory which helps business people create a list of the core intangibles of their company.  This inventory can be the foundation for all kinds of strategic measurement and management projects. But the right next steps depend on the company and the situation. There’s no one right answer except to keep it simple and specific to the unique intangibles of each organization.

Over time, the uses of IC information will grow more prevalent, more complex and more detailed. But it will start out simply.

Where will this happen? – From the bottom up

One of the great lessons of the era in which we live is that top-down solutions don’t work well anymore. Knowledge and power don't flow from the top down today. We need to remember that. IC will never be adopted because someone tells companies they have to do it. The action will be with individuals, teams, divisions and, eventually, larger organizations.  Their inspiration will come from each other and from the internet, but not from the business schools or the government or the IASB.

This has been a tough lesson for the IC community. Even though we in this community are forward thinkers, we are like everyone in our generation, a product of our formation. A lot of the things we were taught about making things happen date back to the industrial era. Too often we default to looking for the top-down solution, for the set of rules or requirements that will require adoption of our ideas. Give up that dream now. Start thinking about how to foment change from the bottom up.

Why will business people finally pay attention to IC? – Social is the tipping point

When you see the data, the shift away from the industrial economy has happened gradually over decades (albeit with two spikes with the introduction of the PC and the internet). IC is already the currency of our current era. But the ideas have not taken hold because most people have been able to cope with the new economy using the old core of tools (GAAP accounting, organization charts, and command and control management) with just small adjustments at the margins. Until now, using old tools might have slowed you down but they haven’t been viewed as a liability.

But now we are at the point where old management concepts are actually doing harm to companies. They block the movement of knowledge and learning. They prevent innovation. They motivate employees to guard rather than share knowledge. They encourage competition rather than collaboration.

The introduction of social technologies is turbo-charging this trend. Social technologies (beginning but not ending with social media) empower employees, customers, partners, stakeholders and the general public to comment and critique everything an organization does. They also create the opportunity for individuals to share their knowledge—but only if they want to. This shifts the balance of power. If you don’t have engaged stakeholders who trust you, you don’t have a license to do business. Mainstream managers are sensing this and scrambling to find an alternative set of tools for their toolkit. IC is at the core of this nee toolkit.

When will IC cross the chasm?  In 2015

OK. This one is a shot in the dark. But I feel that the shift is already beginning  and we will move from early innovators to the mainstream business community in a couple years or so. Why? Economic stagnation and the need for innovation make the need for change more urgent all the time. And, as explained above, social technologies are making it clear that change is necessary. But the real reason that I believe that it will happen is because these new social technologies will make it easy to change (more on this below)

How – By building a collaborative ecosystem

One of the great opportunities of the moment in which we live is the ability to create collaborative ecosystems. John Dumay calls this the shift from competitive advantage to collaborative advantage. A community that bands together to collaborate in building a market has the potential to disrupt the status quo and compete with even the largest company or the most entrenched ideas.

To spread IC thinking, we need to adopt 2.0 collaborative thinking and change the world from the bottom up. At Smarter-Companies we are creating a prototype of such an ecosystem.  We are offering our own tools and training side by side with the tools developed by other companies.  None of us has all the answers but together we can come close.  And by collaborating and sharing what we learn, we will get better and faster answers than we could on our own.

What's the future of IC? Let's create it together!

I just had a very interesting lunch. We discussed the core of the central wage negotiations between the unions and the employers' counterparts - that will be encompassing more people than ever this spring.

Is it not very old fashioned to define strict wages for huge clusters of people, solely dependent on some industry category that they were tagged with?


Without any concern of the quality of the job that they perform.
Without any recognition of them as individuals with various degrees of enthusiasm and contribution to cultural aspects of the organization they belong to.
Without even thinking about the relationships they bring to company or the processes they build that can have long lasting value for their companies in many years to come.

In essence - shouldn't salaries be set related to each individual’s contribution to the value creation of their firm? I.e. to building intellectual capital.

You tell me.