Great Small Business Ideas to Start: Developing knowledge and intellectual capital
Developing intellectual capital is imperative, as knowledge is an asset and a source of power. As Lew Platt, former CEO of Hewlett-Packard, says: “If HP knew what it knows, we would be three times as profitable.”
The idea
Knowledge is the intellectual capital that an organization possesses. Technological developments and the internet have promoted an explosion in the scope and depth of available knowledge. As there is so much information and knowledge available, it is important for organizations to know how to creatively develop and use information. Intellectual capital is an asset that is created from knowledge.
As writer Thomas Stewart argues, “Intelligence becomes an asset when some useful order is created out of free-fl owing brainpower . . . organizational intellect becomes intellectual capital only when it can be deployed to do something that could not be done if it remained scattered round like so many coins in the gutter.” Knowledge and information have to be collected, protected, and effectively managed if they are to be valuable resources.
Appointed in 1991 as the world’s first director of intellectual capital at Skandia (Sweden’s largest financial services corporation), Leif Edvinsson divided intellectual capital into three types:
- Human capital, in the heads of employees.
- Structural capital, which remains in the organization.
- Customer capital, deriving from the relationships that the company enjoys with its customers. Customer capital is often seen as a subset of structural capital.
Skandia’s measures track whether intellectual capital is increasing or decreasing, focusing the organization’s culture and thinking on increasing its intangible asset. In Edvinsson’s view: Intellectual capital is a combination of human capital— the brains, skills, insights and potential of those in an organization—and structural capital—things like the processes wrapped up in customers, processes, databases, brands and systems. It is the ability to transform knowledge and intangible assets into wealth-creating resources, by multiplying human capital with structural capital. This is the intellectual capital multiplier effect.
At Skandia, human capital is divided into customer focus, process focus, and renewal and development focus. Edvinsson designed a process for each business unit to report on all areas of intellectual capital, enabling the organization to quantify its intangible intellectual capital assets. Moreover, managing intellectual capital has nurtured innovation and new thinking, and has helped create a mindset that will enable Skandia to compete in the future.
In practice
- Undertake a knowledge audit. Few firms know what knowledge they possess—because knowledge is confined to a few, or simply neglected. A knowledge audit will uncover the breadth, depth, and location of an organization’s knowledge. It has three core components:– Define what knowledge assets exist—especially information or skills that are difficult or expensive to replace. – Locate the assets: who keeps or “owns” them. – Classify them, and assess how they relate to other assets. This will reveal opportunities in other parts of the organization.
- Increase knowledge in key areas. This can be done in three ways: it can be bought, rented (eg by hiring consultants), or developed through training.
- Maintain knowledge. Knowledge gaps make an organization more vulnerable to competition. Lost expertise and experience following “downsizing,” and the erosion of traditional employee loyalty, highlight the urgent need to capture, codify, and store people’s expertise and tacit knowledge.
- Protect knowledge. Explicit knowledge, such as copyright or information codified in handbooks, systems, or procedures, can be legally protected. Tacit knowledge, information retained by individuals, including learning, experience, observation, deduction, and informally acquired knowledge, can only enjoy limited legal protection through, for example, non-compete clauses. It is necessary to ensure that valuable tacit knowledge is recorded and passed on.
- Establish information systems. An efficient information management system will coordinate and control information, and help with planning. When developing a system, decide what information is needed to help improve decisions and achieve objectives.
- Manage the fl ow of information. Understand how information flows, what it is used for, and the ways in which it can be applied.