Six months ago, Alex Piper hired one of the brightest young software engineers he had ever met. At 22 years of age, Joseph was a virtual genius who often worked 42 hours straight when smitten with a new inspiration. An admiring cast of equally innovative and hard-working techies could often be found hanging out in Joseph's cubicle, bantering ideas back and forth. Many of these impromptu brainstorming sessions evolved into overnight programming sessions, as the engineers vied to prove their thoughts were more tangible than their colleagues'.
Failures, server crashes and mind boggling dead ends erupted with frightening regularity in the miles of code suddenly being generated at ConserCom. But so too, did the priceless ideas that translated quickly into tangible, high-demand products. In the ruthless world of telecommunications, ConserCom captured 70% of the buyers in its niche within six months.
Alex was justifiably proud of his "band of Merry Men". Joseph was dubbed "Robin Hood" for his uncanny ability to reverse engineer a competitor's prototype once he had hacked into their secure intranet. If a firewall defeated him, he would simply build a better solution once the product was released. The merry band's late night shenanigans, unorthodox business practices, powerful disdain for Corporate policies and procedures, and preference for brainstorming at the star Bucks down the street were all met with a tolerant fatherly understanding by the Board of Directors, who merely stated that "boys will be boys".
Joseph celebrated his one-year anniversary with ConserCom by vesting all the options he had been given upon joining the company. Alex thought nothing of it. In fact he was engrossed in fighting off a takeover from a global telecommunications giant, which had suddenly taken an interest in ConserCom's stellar performance. As the company was preparing to launch its next generation chassis solution, capable of carrying twice the volume of data and multimedia as the nearest competitor, all the engineers had gone into stealth mode - even the water cooler chitchat had ceased as the big day approached.
The Board of Directors applauded the Merry Men's sudden realization that they needed to keep the project highly confidential. They had been increasingly worried about the offsite coffee klatches, fearing that a competitor might somehow overhear the techies and scoop them. In keeping with the Board's concern about an outside threat, Alex approved Joseph's decision to keep all research and development documents for the prototype on a standalone computer system, so hackers with the competition t gain access. All paper files were promptly shredded and employees found themselves on a strict need-to-know basis.
To say that Alex was stunned when Joseph abruptly quit, giving two weeks notice (which he took as vacation due to him), would be an understatement. The fact that the entire band of Merry Men left with him amounted to a life crisis for their manager. He was fired when ConserCom discovered the standalone computer used to store all the engineering files had been Joseph's personal laptop. Six weeks after the crisis erupted at ConserCom, a fledging firm aptly named stellarCom launched its flagship product - a wireless chassis capable of carrying three times as much multimedia and data as the competition. Their wireless technology was patented.
ConserCom did everything in its power to recover from the catastrophe. But the computer belonged to Joseph, and the only notes left behind were useless. Employees had no idea what the Merry Men had been working on, only that it "certainly wasn't wireless". Furthermore, ConserCom did not have a non-competition policy - their employees did not even sign nondisclosure agreements. The company could not even sue their former employees for theft as they had no proof that Joseph's solution had ever been on their drawing boards!
The lesson learned from this story? Your intellectual assets are for sale and you'd better not forget it. Worse, they can be stolen from under your very nose while you are having coffee with the thief.
"Knowledge is power, which is why people who had it in the past often tried to make a secret of it" stated Peter Drucker many years ago. Today, the reverse is true - power comes from sharing information to make it productive, not from hiding it. With the Internet driving the economy at the speed of radioactive half-lives, intellectual capital is increasingly vital to enterprise competitiveness and market value. In fact, conventional wisdom holds it out as the single most valuable corporate asset in the 21st century. But what exactly is it, and more importantly, if it represents competitive advantage, how do you protect it?
A simple definition of intellectual capital is knowledge that can be converted to profit. Consisting of three major components: human capital (tacit knowledge), structural capital (explicit knowledge) and customer capital (both tacit and explicit), intellectual capital encompasses inventions, ideas, general know-how, design approaches, computer programs, processes, and publications.
For example, a software engineer's dream that transcribed itself into millions of lines of computer code that ultimately made the World Wide Web a common household name. Intellectual capital is far more that just an end product, however. It comprises all the lessons learned, infrastructure and people that allow companies such as Netscape and Microsoft to get their Web browsers to market faster than other competitors and stay there by reducing their R&D and product development cycles. Intellectual capital represents significant competitive advantage when enriched with the insight of human experience and wisdom.
Today, creating bulletproof products is no longer as important as the ability to crystallize the ideas and thoughts behind the product. With customers who are increasingly more knowledgeable about what they wish to buy, and who have infinite amounts of market intelligence at their fingertips, organizations are continually challenged to identify and test strategic opportunities - to plan for their future assets. Products are becoming totally customized to the point where there is no product and customers are the creators.
Therefore, core competency and competitive advantage no longer lies in the product or service itself, but in your design and marketing capabilities, combined with the ability to mix and match "bleeding edge" or new frontier ideas to create new services and products faster and more continuously than your competitors. In a world that runs at Internet speeds, the business approach that mirrors the analytical consistency of a grand master in a three-day game of chess has been replaced by a whiz kid playing a WISDOM computer game.
Ultimately, success in business is going to be determined by a company's ability to build and leverage its intellectual capital. "Leverage" in this context means not only capturing and managing knowledge, but also gleaning appropriate information from all available sources and being able to filter it. Organizations cannot leave their visioning and strategy formulation to executives alone. Their employees are far closer to the lifeblood of the business and they must be consistently tapped for ideas and innovations. The problem most organizations face is that their intellectual capital is hard to collect, and the resources that own these assets walk out the door at 5:00 every day, some not to return. With the amount of re-engineering (a.k.a. downsizing) that has been done over the past few years, organizations have fewer resources with which to accomplish goals that will make them successful in the future. As a result, there is a growing need to protect key employee competencies, business data and market data in the same manner that patents and copyrights are extended to protect tangible business and technical processes.
Knowledge management is an increasingly popular business strategy currently being implemented by organizations seeking to manage their intellectual assets. It is generally accepted that an increase in knowledge results in reduced rework, more innovation and lower general costs from handoffs and lost customers. In fact, managing knowledge is not new and is, in fact, a discipline that has existed for some time. Many companies have knowledge sharing, documentation and communication processes in place that come under other names. The current explicit move to Knowledge Management is designed to bring a higher sense of awareness to those efforts so that more value can be derived from them.
The greater challenge until recently has been to capture each individual's tacit knowledge (what they carry around with them and what they observe and learn from experience, rather than what is explicitly stated). Recent advances in information technology have now made this task possible, as mature structural capital solutions begin to address groupware, communications and collaboration, in addition to structural capital.
The ability to effectively capture, protect and leverage intellectual capital in today's Internet economy is the defining competency in the knowledge age. This paper proposes an approach that combines the traditional business approach of change management and process re-engineering, with advanced technology solutions that incorporate electronic document, workflow and enterprise portal approaches.
The Knowledge Management Business Model
Organizations seeking to capture and leverage their intellectual capital must first examine their business strategy. If it is not clear how improving Knowledge Management will benefit the bottom line, then it will be impossible to link knowledge drivers to the organization's value proposition. In the past century, developed nations have undergone a transformation from raw material processing and manufacturing activities to the processing of information and the development, application and transfer of new knowledge. For the most part, we have dragged our antiquated management style from yesterday's market system with us into the new millennium, forcing it to fit the new eBusiness paradigm (and if you don't believe this, ask yourself why our MBA programs still teach commerce instead of eCommerce classes.)
Only when an organization can link its knowledge resources directly to tangible improvements (i.e. serving customers consistently and effectively in an eBusiness domain; responding rapidly to changing competitive conditions; offering innovative products and services to customers when and where they want them in a cost-effective manner), can an organization begin to leverage its most powerful core competency - the brain power of its people.
Organizations seeking to manage their intellectual capital must first start a Knowledge Management discipline at the individual, team, enterprise and extended-enterprise levels to compete in today's environment of e-business, shrinking response times, hyper-outsourcing, and shortages of expert resources.
The new business model for organizations seeking to develop the informal and entrepreneurial culture required for innovation and knowledge to flourish is based on the following principles:
• Communicate a clear business strategy that supports Knowledge Management and intellectual capital, and ensure that all technology and operations support that focus.
• Cultivate a "high trust" culture and discipline characterized by shared values, transparent communications and encourage individuals to accept responsibility and take risks.
• Promote and support knowledge sharing, collaboration across and among employees/business units, and a drive toward innovation.
• Empower and reward innovators, champions, risk takers and change agents, while honoring those who make the sales. Remember to promote those who do the best job of sharing.
• Provide robust business and human processes to support Knowledge Management, including compelling technology environment to automate the processes and to support collaboration and the Knowledge Management discipline.
• Provide a challenging work environment in which learning is driven by people pushing one another in open, honest knowledge sharing and brainstorming.
• Provide long-term leadership, enthusiasm, and sustained commitment while embracing the chaos of innovation, and
• Identify and improve processes that are unique to your organization and which can become a source of competitive differentiation.
The Knowledge Management Business Approach
A proper Knowledge Management strategy removes inefficiencies from organizations and enables lines of communication to be opened, many of which were formerly unknown. It facilitates the sharing of ideas and codification of innovation. Nothing Is more frustrating than to find that the report or analysis that you have been working on for six weeks was completed six months ago by the person in the department next to you. Not only did you "reinvent the wheel", you did so without the benefit of the content contained in the previous report. How many times has your boss needed an answer "yesterday" that sent you on a wild goose chase for the paperwork, only to discover after the fact an expert is located on the same floor as you, or worse, the author of the elusive document sits right behind you?
Resources, time and ideas are now our scarcest assets and what we need is a Knowledge Management infrastructure that will help employees, partners, suppliers and clients spend more time looking at the answers and less time trying to figure out where they are. What we know is important. What we don't know is possibly even more important. By providing corporate planners with the requisite tools and methodologies, a knowledge capture and management strategy can be planned that meets corporate goals and objectives, while ensuring that intellectual capital is adequately preserved.
Knowledge Management is still a relatively new concept, despite the fact academics have been espousing it for years. The problem has not been identifying knowledge and its relative importance to the organization. Rather, it has been designing both a culture and a system that would capture and codify the unique knowledge assets for each organization, most of which are walking around in people's heads. Transferring this tacit knowledge into an explicit form has been all but impossible until recently when technology has made the solution both real and affordable.
>There are still no set steps that will lead you to a Knowledge Management system that works best for your organization in this new information-based economy. Every business environment has different types of knowledge and different processes for the use of that knowledge. The creation of a Knowledge Management strategy that codifies and collects ideas, skills, documents, solutions and concepts into a single repository that is available for use by the entire organization is still beyond the reach of most organizations. It is not an issue of unavailable technology either. It is because the organizational culture and people simply aren't ready. Here however is a suggested format:
Collection and Codification of Skills and Knowledge Bases The collection and codification of skills and knowledge bases commences with a Knowledge Audit designed to locate and map the tacit knowledge and intellectual capital resident in an organization, as well as determine the organization's level of readiness. The audit provides for the systematic analysis of the capacity and capability of an organization to foster innovation, convert ideas to knowledge through the encapsulation of lessons learned, and drive products and services into the marketplace profitably and expeditiously.
The collection and codification process includes all aspects of the innovation value-system - from idea creation through full commercialization. In this way, modern management concepts can be converted into a unique knowledge strategy intended to provide sustainable advantage, while protecting the intellectual capital core.
Development of a System for Knowledge Management Once the collection and codification of tacit knowledge and intellectual capital is completed, technology solutions start to come into play. At this stage, authoring systems, business processes, information technology (IT) platforms and IT resources are coordinated to deliver a Knowledge Management solution both internally and externally.
Increasingly, off-the-shelf software solutions can meet the needs of most organizations. Popularly known as Enterprise Information Portals, these solutions allow an organization to find, transfer, manage, and leverage the knowledge locked up in file folders, computers, conversations, and better yet, individual minds, in order to satisfy, delight, and retain clients and users alike.
Creation of a Metric for Providing the Dollar Value of IC Once the organization has quantified how much and what type of data and information are available to them, they can begin to put a dollar value on the intellectual capital itself by participating in benchmarking and best practices studies both internal and external to their industry. One such program is promoted by the KM-IP Task Force, which is developing a standard for associating a dollar figure with intellectual capital. As the worth of Intellectual Capital is solely a perceptual issue, an organization's metric must be developed based on sound business assumptions. Currently, the goodwill-to-book value ratio and Tobin's Q are the most common approaches in use.
This paper addresses the first two phases of the approach. The third phase will follow in a paper to be published in the spring of 2001.
Knowledge Management Tools
Consider for a moment that Intellectual Capital consists of three components: human capital, structural capital and customer capital. These components do not exist in isolation of one another. In fact, their value is directly proportional to the amount of interplay between them. Thus, the goal of Knowledge Management tools is to develop networks of people who collaborate, not networks of technology that interconnect. And unless these tools are of demonstrable value in helping employees get their work done or meeting customers' needs, they won't be used.
There are several important Knowledge Management tools, which can be employed for capturing, codifying, sharing and leveraging Intellectual Capital:
Enterprise Information Portals Perhaps the most significant of these Knowledge Management tools is the Enterprise Information Portal, which is a fully customizable, Web-based workspace that provides employees with a single point of access to all business-critical information and resources through one screen on their computer. Acting as a gateway, or a destination, or both, the portal provides access to all types of corporate data, regardless of its format or location. It connects users to content in context and enables them to quickly process, filter and act upon information including e-mail, structured and unstructured enterprise databases, videos, audio and multimedia, as well as external sources such as news services and the Internet. As a result, the Enterprise Information Portal is an organized, comprehensive, and up-to-date view of all the information and knowledge relevant to each employee's specific work requirements. The ultimate goal of an Enterprise Information Portal is to turn employees' tacit knowledge (human capital) into an enterprise-wide asset (structural capital) that can increase in value with each cycle or recycle.
Competency Maps Employees consult these maps to understand what skills and attributes they will need if they are to do their jobs successfully and to develop professionally for the future. These maps are derived from customer and market surveys, which determine the core competencies required by the organization and enable flexible training programs to be tailored to meet these competencies. As the maps help provide direction to an individual's aspirations, the result with training is a knowledge pull, not an information push. Learning occurs just in time, right when the person decides they need it most, for the greatest possible impact.
Knowledge Maps The data flows identified in the knowledge maps include what information is needed to support and manage business processes, where it resides, how it is delivered, what is missing and which users need what content and when. The resultant information model provides input into several subsequent activities including: content authoring processes, taxonomy rule definition, transaction management, reporting and data synchronisation interfaces; security and data sharing requirements; and application and database configuration architecture. Once the knowledge maps are formalized, they may be embedded within a technology solution to assist employees with creating, locating, reusing, and leveraging knowledge assets. Furthermore, they enable the organization to commence the process of preserving and protecting their intellectual capital.
Communities Communities of practice or communities of interest provide access to people informally bound to one another through exposure to a common set of issues, a common pursuit of solutions and/or a common purpose. Also referred to as sharing networks, competency centers and work clusters, communities of practice are one of the best ways to create knowledge as well as transfer it. By providing a group of professionals with an electronic "playing field" to discuss and share ideas, their brainstorming, knowledge sharing, problem solving, and innovations may be captured and codified in a formal manner for later use and/or protection. In fact, high value employees enjoy and thrive in these types of environments and this facility may suffer less from "Brain Drain".
Corporate Repository When designed as an integrated performance support tool, Corporate Repositories (also referred to as KnowledgeBases and Corporate Yellow Pages) "know" the employees and their needs, how they work and can support them at their points of need by providing advice, tools, reference materials, best practices, and training. Groupware such as email and the internet can quickly distribute information, but they cannot help identify the relevant knowledge or who has it. Corporate repositories link documents together, and provide direct access to authors and subject matter experts. When empowered with sophisticated knowledge mining tools, they are a powerful tool.
Lessons Learned Database Lessons learned databases contain all the pertinent information about previous engagements or projects undertaken by the organization. Every project, regardless of whether it succeeded or failed, has something to teach the organization and its people. By codifying this information for future reference, the database is an excellent example of how tacit knowledge and experience can be translated into explicit knowledge for examination and use, then transformed back to tacit knowledge for rapid implementation. Allowing Intellectual Capital to move through this cycle ensures that knowledge is congruent, captured and leveraged to give it the highest value.
Knowledge Forum Knowledge forums include chat rooms, online meetings, electronic whiteboards, digital dashboards and bulletin boards. They provide a secure environment in which the organization's entire human and customer capital can interact. While information and ideas "flow" through these electronic channels, gaining value with each iteration, the organization has a tangible system for capturing and codifying these "water cooler conversations". Knowledge forums erase the time and geographic barriers to collaboration, and as with external communities of practice, they often provide the side benefit of gaining valuable intelligence on the competition, when partners, clients and suppliers are invited to the table.