A Compound of Alchymie

Human Capital Wars

Microsoft hates Google apparently. Why? Probably because the upstart technology company is rocking the boat. Google is investing a lot of cash in developing the technology of the future and Microsoft is clearly rattled. Google are even developing an operating system - albeit a very different one. The following comes from Jason Kottke:

"They have this huge map of the Web and are aware of how people move around in the virtual space it represents. They have the perfect place to store this map (one of the world's largest computers that's all but incapable of crashing). And they are clever at reading this map. Google knows what people write about, what they search for, what they shop for, they know who wants to advertise and how effective those advertisements are, and they're about to know how we communicate with friends and loved ones. What can they do with all that? Just about anything that a collection of Ph.Ds can dream up."

Clearly Microsoft won't just sit idly around while Google are working towards world domination but one of their immediate short term concerns is the fact that Google are attracting some of the best people in the technology buisness. Worse still, some of those people are Microsoft employees. Microsoft is pursuing variety of law suits as a spoiling tactic - relying primarily on employee contractual agreements not to work for competitors within a specified time period (often 12 months).

According to Paul Saffo a Silicon Valley technology commentator:

''Google and Microsoft are locked in a brain race to see who can hire the biggest brains on the planet."

This war for  human capital is a feature of our knowledge economy. No matter how many knowledge bases or KM tools we put in place the really valuable knowledge will continue to reside in people's heads. When I talk to clients about KM and intellectual capital I sometimes ask them the following question:

What damage would be done to your business if the five most knowledgeable people left today?

Some businesses struggle to actually identify these five people - though in practice it isn't as difficult as they think. A friend of mine is a 'recruitment research consultant' and he is an expert at identifying who knows what - then tempting them to jump ship and work for the competition. Identifying the knowledge 'hotspots' in your business isn't that difficult - and if you don't do it then the chances are your competion might do it for you - and as they say;  'You never know how valuable someone is until they've gone'.

Very Small Businesses

I have been working with some associates recently on potential projects in the small business support space (including Business Link and the Business Link University).  One of the things I am interested in is intellectual capital and its value to SMEs. I am particularly interested in knowledge businesses but all businesses in some way get value from seeing their business from an intellectual capital viewpoint.  A recent CBI report though on the effectiveness of government support to small businesses makes interesting reading - in particular I liked the following:

" Since 1999, whilst the number of businesses in the UK has grown from 3.7 million to 4.1 million, the number of companies with staff fell from 1.35 million to 1.23 million - reflecting an increasing proportion of 'one-man-bands'."

That effectively means that 70% of all businesses have no employees (that's nil, zilch, nada).  That's an amazing statistic and must say a lot about the reasons why people start businesses in the first place. My friends at Business Link talk about lifestyle businesses - basically businesses that are started to support the owner's preferred lifestyle - and not actually to make lots of money for stakeholders or shareholders.  These businesses are considered second class because in the eyes of the goverment a good business is one that grows, employs people and hopefully also makes big profits (that can be taxed). The question is - are lifestyle businesses actually more attuned to people's  own needs? Is human capital the ultimate form of capital?

It would be useful also to consider how these businesses support larger businesses - many of these micro businesses are undoubtedely doing excellent work for much larger clients. How can we measure the value they provide to the economy as a whole? Can an intellectual capital model help?

Some of the most creative and committed people I know run micro businesses - clearly we are not alone!

Macro and Micro KM

My brother is a development economist - an LSE graduate that has spent his entire working life working on aid projects in Africa,  Asia and South America. In the aid and development business KM  has become a key issue but it's something that isn't well understood.  Did I have a good beginner's guide to KM my brother asked. Good question I thought, so I put together some stuff for him and also recommended 'The Idiots' Guide to Knowledge Management' by Melissie Clemmons Rumizen. In my quick 'beginner's guide' I used the terms 'Macro KM' and 'Micro KM' and thought that this was a useful way to separate big picture and small picture KM.

If you follow my thinking KM has two strands – the macro strand that sees knowledge as a strategic organisational issue, and the micro strand which sees knowledge more as a resource (among many) that simply has to be used more effectively.

Macro KM  sees the big picture and is more concerned with leveraging the value of knowledge than managing it. This approach now largely comes under the banner of intellectual capital and is based on the work of Sveiby, Edvinsson et al. For many organisations however this approach is too vague (and probably too strategic) to take seriously but in my view it’s critical in helping to explore the real (and sustainable) value of knowledge.

Micro KM is the KM that most people know about and have probably experienced. It rests on the simple premise that things could be much better around here if we only shared our knowledge more effectively. Easier said than done, but 90% of KM programmes attempt to tackle this issue and are effectively tactically rather than strategically driven.

Does your KM programme fall into the macro or micro camp? I've described them as 'strands' purposely to suggest that any KM approach should be doing both. Even when I work with clients on micro KM projects I also try to create a macro strand becuse ultimately if you don't get the big picture all micro KM projects will ultimately wither and die.

Intellectual Capital Mismanaged

Being interested in intellectual capital I have watched closely the demise of the UK's last nationally owned major car manufacturer. Since Phoenix took over from BMW five years ago the company has been drained dry of both it's financial and intellectual capital. Clearly there wasn't much in the way of financial capital when Pheonix took over but what about the value of intellectual capital that always appears hidden in the balance sheet? Phoenix bought MG Rover for £10. What did they get for that? Whatever value there was in the business - intellectual or otherwise - it has been squandered by Phoenix, to the extent that even the Iranian carmaker Dastaan has decided to steer well clear.

Apparently, the administrators PwC believe there are sufficient intellectual property rights remaining in MG Rover for a car-producing business to be sold. Most of this value probably exists in the brand and what is left of the customer capital. Even the rights to the company's two key models - the  Rover 75 and 25 are no longer owned by the business but by the Chinese SAIC.  I noticed recently that SAIC had recruited a core team of 'experts' from Rover to help them gear up for the production of the 25 and 75 models - human capital can leak away very quickly once an organisation begins to decline.

All this talk of destroyed value also reminded me of some discussions I had with a ex-colleauge of mine about a year ago. At the time he was winding up 'failed' companies - it was his task to squeeze out every last drop of cash before the businesses were wound up. Usually this meant going after the book assets but I suggested that there may be considerably more value in the intangible assets. He wasn't convinced but I still think that a more thorough  understanding of intellectual capital may enable failing companies to focus more carefully on corrective action that might actually save them, or at least prevent them becoming completely worthless.

In the case of MG Rover, one has to ask the question - did Phoenix have their eyes on the wong ball? Could thousands of jobs have been saved if Phoenix had managed Rover's intellectual capital and intellectual property more intelligently?

Balanced Scorecard

As usual, I'm trying to read a number of business books at the same time. The latest addition to my bedside reading pile is 'Kaplan and Norton's 'Balanced Scorecard - Translating Strategy Into Action'. I've been aware of the Balanced Scorecard for quite a few years and though some clients do use it their engagement seems fairly shallow - possibly it's been forced on them by zealous senior executives. My interest stems from my current efforts to do some more joined-up thinking on the value of knowledge and intangibles in organisations. From what I've read so far it ties in quite well with both Karl-Erik Sveiby's and Leif Edvinsson's approaches to intellectual capital and I'm keen to draw some comparisons between the different approaches - Balanced Scorecard after all is much more prevalent that either Karl-Erik's Intellectual Asset Monitor (IAM) or Leif Edvinsson's IC Navigator.

Referring to the over reliance on financial measures in business Kaplan and Norton say:

"At its heart, an overemphasis on achieving and maintaining short-term financial results can cause companies to overinvest in short-term fixes and to underinvest in long term value creation, particularly in the intangible and intellectual assets that generate future growth."

And this of course is what intellectual capital is all about - exploring the realtive merits of investment in different intangibles in order to build long term value.

I will post an update once my research is complete but in the meantime Karl-Erik has already done a comparison between IAM and BS.