Chapters 4-9
“Intellectual Capital: The New Wealth of Organizations”
by Thomas A. Stewart

 

Summarized by: Mai Sanchez
21 July 2001

 

Summary:

Chapters 4 to 9 form Part Two of Stewart’s book.  This section discusses key principles in the management of intellectual capital as broken down into three broad categories: human capital, structural capital and customer capital.

These principles are:

1. Companies don’t own human and customer capital.  These assets are shared with employees in the former, and with suppliers and customers in the latter.  Only by recognizing this shared ownership can a company manage and profit from these assets.

  • Intellectual capital moved from supporting role to starring role, as knowledge becomes the primary raw material and result of today’s economic activities.  Its value is far more than the hard assets of a company, but this value is unaccounted for because it is not seen and acknowledged.  The iceberg is the inevitable metaphor in the valuation of company assets, with intellectual capital as the submerged portion of the iceberg.
  • Valuation of intellectual capital is easy when the material is patentable.  Problem arises in valuation of “soft” (tacit) knowledge.  Management of intellectual capital then involves packaging these soft knowledge in such a way that the private becomes public, the tacit becomes explicit and can now be examined, improved and shared.
  • Gordon Petrash, director of intellectual asset management of Dow Chemical Corporation, has 6-step intellectual property management process:
    • Begin with strategy, define knowledge’s role in each business unit
    • Assess competitors’ strategies and patent portfolios
    • Classify your portfolio
    • Evaluate cost and value of your intellectual property
    • Invest in identified gaps, consider r&d, technology acquisition, etc.
    • Assemble your new knowledge portfolios and repeat process ad infinitum
2. To create human capital it can use, companies need to foster teamwork, communities of practice, and other social forms of learning – or else knowledge walks out of the door when the individual talent leaves the company.
  • Human capital is the capabilities of the individuals in the company providing solutions to the needs of the customers.  All the employees of that company represent the value of a company’s human capital.  The company must distinguish between the cost of paying people and the value of investing in them in order to profit best from this human capital.
  • To hold people to the company, the company must forge company-employee bond, such as in stock options, employee stock ownership, etc.
3. In the management and development of human capital, companies must recognize which talents are assets and which are not – and focus and amass these talents where needed either by hiring or by teaching.
  • Not all skills are equal. There are three kinds of talents and skills: commodity (not specific to any company), leveraged (while not specific, it is more valuable to a company than to another), and proprietary (company-specific talents on which the business is built on).
4. Structural capital is the intangible asset companies own outright and can easily manage and control, but is what customer cares least about.
  • Structural capital is composed of assets for the sharing, transporting and leveraging of knowledge, turning individual know-how into group property.  The management of intellectual capital requires structuring and packaging of competencies through technology, knowledge databases, process descriptions, manuals, networks, etc. – which form part of the company’s structural assets.
  • Knowledge to stock: corporate yellow pages, lessons learned, and competitors’ intelligence.
5. Two purposes of structural capital: (1) amass stockpiles of knowledge that support the work customers value, (2) speed intra-company information flow.

6. Information and knowledge can and should substitute for expensive physical and financial assets.  However, passion for the value of intellectual capital must not come at the expense of the basic principles of management.

7. Knowledge work is custom work.  Create special relationships.  Avoid mass-produced solutions and possible information overload.

8. When information is power, power flows downstream toward the customer.  The customer today can call the tune because he knows the score.  The challenge is to enable your company into knowing what happens at the customers’ end – reanalyzing the value chain of the industry you are in.

  • Managing customer capital includes considering electronic data interchange, buyer-supplier partnerships, business-to-business interface, and other supply-chain management techniques.
  • How to invest in customer capital:
    • Innovate with customers
    • Empower your customers
    • Focus on your customers as individuals
    • Share the winnings with your customers
    • Learn your customer’s business and teach her yours
    • Become indispensable
9. Focus on the flow of information, not on the flow of materials. It used to be that information supported the real business, now it is the real business.

10. Human, structural and customer capital work together.

  • Intellectual capital is created from the interplay among human capital, structural capital and customer capital.
  • Human capital and structural capital reinforce each other when a company has a shared sense of purpose combined with an entrepreneurial spirit.  The two destroys each other when most of what goes on is not valued by customers, or when company center attempts to control behavior rather than strategy.
  • Human capital and customer capital grow when individuals feel responsible for their part in the enterprise, interact directly with customers, and know what knowledge and skills customers expect and value.
  • Customer capital and structural capital grow when there is mutual learning amongst company and customers and when they strive to make their interactions informal.

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