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Strategic Capital - intersection or category?

Posted by Matthew Loxton on June 7, 2012 at 4:49pm

In a recent article on ICKC, the following definition was given to Strategic 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.

http://www.i-capitaladvisors.com/ic-basics/i-capital/

 


What puzzles me is whether this represents a fourth kind of IC,  or whether it is more the overlap of the other three.

In that view, what makes Strat-C is the space in which the other three overlap in the service of the specified goal.

One might therefore have Human C, Structural C, Relationship C that exist in your firm but have no role in achieving strategy and are therefore excluded in the set of what makes Strategic C.

Any thoughts?

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Comments

  • Mary Adams June 12, 2012 at 4:09am

    Matthew- This shows at a high level how we inventory IC for presentation to a bank or investor:

  • Matthew Loxton June 8, 2012 at 12:30am

    Splendid!

    So then I think I spot only one more gap to be filled in.

    When I go through my KM audit, I will collect much of the Structural Capital (I think), and the Human Capital parts of Strategic Capital, but who is inventorying the Relationship Capital?

    I can imagine the KM guy asking "how do you know how to do this" and being told "I ask Bob, he tells how to do this part" which results in a relationship being recorded, and I also collect the social network structure with regard to Communities of Practice, but who is collecting the rest?

    In fact, how do we identify what parts of IC I am not inventorying that you and a Banker would want to know?

  • Mary Adams June 8, 2012 at 12:11am

    You're right that it is the connection that is critical about Strategic Capital. So I guess I don't care if you separate it out as a different category or not. But ultimately, the question must be asked: is all this knowledge put to work in a way that it successfully solves a problem/meets your goals?

    It's this holistic thinking that is a (maybe the) critical element of IC theory.

  • Matthew Loxton June 7, 2012 at 11:28pm

    Ok, so then I am only partly on the same page.

    I see IC as all knowledge that is under some form of control of the organization (I would say "firm", but it may be a non-profit, NGO, or government org too). I agree that in this context knowledge is only that thinking etc. that can be used to solve something.

    I agree on looking at it from the financial end first, and in fact my KM audit looks at only two Tier-1 value propositions: the Money (EBITDA & Market Cap) and those non-negotiable value statements that the owners. board, etc. might have decided to adopt. Stuff about who they may trade with, what businesses they will consider, or business practices they will accept, and are viewed as carved in stone.

    Then I move backwards looking for the processes that feed those value propositions, and then the activities that must be carried out as part of those processes.

    Then I ask for each activity how the person executing it knows how to do that.

    That's how I build the inventory of what knowledge MUST be owned in order to perform.

    So in IC terms, I would say that is Strategic Capital, because without it you cannot achieve the goals, but there would be relationships that would also need to go into that bucket to complete the Strategic IC inventory.

    What is left over if I were to completely capture on my lists everything that everyone knew, all the processes and methods, and all the relationships, i.e. knowledge that was inventoried but isn't necessary for achieving the goals but still under some form of control by the org, I also count as IC, but not as strategic IC.

    So in a nutshell, to me Strategic IC is the subset of all IC under your control which is individually necessary and collectively sufficient to achieve the Tier-1 goals of the organization.

    Hows that?

  • Mary Adams June 7, 2012 at 11:03pm

    Great question Matthew.

    We added this category based on experiences we had with tools out of Europe and in our client work. Here are some thoughts on why we break it out:

    1. Strategic capital is about connecting what you do to a problem. Intangible capital how organizations access and put knowledge to work. But knowledge is a ubiquitous resource that, practically speaking, only has value when it solves a problem.  Understanding of the problems your stakeholders face, alternate solutions they have and the financial implications of your solution are issues that apply to individuals, teams as well as entire corporations (albeit with a few changes in language)
    2. From a practical view, business model (how you get paid) and your knowledge of your environment are usually important enough that they merit separate examination. For example, when you want to inventory IC and measure it, breaking these out helps get a more complete picture.

    There is always overlap between the different categories of knowledge. In any day, knowledge flows from employees to customers to partners and back again. Processes get improved. Things change.

    But the reason for breaking it down into these categories is to help people understand what's going on, what the sources of knowledge are and how they are put to work.

    I've actually been struggling with an alternate way of explaining this from a personal point of view. Personal IC is what you know (human), who you know (relationship), how you organize your work (structural) and how you pull it all together to solve a problem to create value (and maybe get paid).

    Feedback please!

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