IC of Sweden takes me to Spain
The IC5 was held just last month. It is a conference in Paris initiated by Ahmed Bonfour and it also has a close relation to the intellectual capital group, the New Club of Paris (where I happen to be a founding member - although so far limited in my participation…). The conference main topic is IC of nations and regions. In essence, how does countries develop and use IC in order to become more successful.
The question that sometimes can be difficult to answer is - when is a nation actually successful? Well, when vacation time approaches, I can easily say that Sweden displays its high success. Not necessarily through its weather conditions, but through its regulations granting many weeks of getting off work. Which Swedish intellectual capital components should get credit for that?
So, here I go - off to Spain. And they should be happy to have me; I hear tourism is good for unemployment.
By the way, I signed up on Twitter, I am curious to see what I make of it…
IC - your IP protector
Not surprisingly, my answer to securing income from your innovations when IP protection regulations fails, is intellectual capital.
I am of course referring to my post yesterday about the Pirate Party, but also to many other situations where IP regulations in reality does not serve as a protector. This is a phenomena that has been identified by the Intellectual Property Department (IPD) of the Hong Kong Government.
Small and medium size companies (SME’s) simply does not have the financial resources to file for e.g. a patent. Or if they do, they will definitely not have the financial strength to enforce their rights once infringed.
In order to be a valuable partner also to SME’s, IPD decided to go out of their territory and become advisers in intellectual capital management. Why? Because their belief is that by effectively using IC, companies can create niches, competences and concepts that will be difficult to copy and strong customer relations that will be difficult to break. IP protected or not!
IC in an internal department
Right now, we are helping an internal IT department better understand their Intellectual Capital through an IC assessment. These types of projects can be rather eye-opening, as internal departments do not normally operate in a true market environment. If you think about it, they are usually operating in the abhorred plan economy paradigm (actually, aren’t very few parts of an organization really operating in a true market economy?). I would argue that it is perhaps even more important for these type of entities to understand their internal brand, their processes, and how their “customer relations” are developed. Have you seen other good examples of this, anyone?
Pirates on the move
The Pirate Party won a seat in the European Union. So, who are they, you may wonder. Well, they got 7% of the Swedish votes in the EU parliament elections - based on their one and only political issue: internet privacy. Pretty amazing. And they did not get it because of running a tactical Obama-like campaign using social media etc. No, instead it was more of a grass root movement opposing the Big Brother threat. Many of the party’s followers are pro file-sharing activists, and the party actually adds two issues to their major one: Reform Copyright Law and Abolish the patent system.
The more of the public voice that they gain, the more people and organizations need to think in new ways to earn money on their ideas.
Or, do you still think that the intellectual property rights regulations can prevent copyrighted material and concepts to become public property?
Innovation and Intellectual Capital Failures
Michael Mandel at Business Week has a provocative answer to the question in my last post about innovation and the overall economy in The Failed Promise of Innovation in the U.S. He says:
With the hindsight of a decade, one thing is abundantly clear: The commercial impact of most of those breakthroughs fell far short of expectations-not just in the U.S. but around the world.
He doesn’t really answer the question about the gap between what we expected of innovation and what we got. But he is pointing us in the right direction.
I can’t help but think that there is a link between the failure to benefit from innovation and our failure to create standards for the measurement and management of the knowledge intangibles–intellectual capital–that fuel innovative ideas and, more importantly, puts them to work in viable business models.
Innovation is the strategic imperative of our time. But we need to stop approaching the challenges of the knowledge era using industrial era tools.
New Research on Innovation
The Conference Board has released an interesting new report: Innovation and US Competitiveness: Reevaluating the Contributors to Growth although given the current economic troubles, their conclusion rings a little hollow:
The United States has enjoyed almost a decade of strong economic growth that has been fueled by huge productivity gains, increased competitiveness in manufacturing, high employment growth in services, and solid wage gains. Innovation, when cautiously measured as improvements in skills, investments in information and communication technologies, and such intangible items as research and development and organizational competencies, probably accounted for more than half of the improvement in labor productivity growth between 1973-1995 and 1995-2005.
The question that I have is: how do we turn intellectual capital and innovation into sustainable economic growth? I’m not sure that we know the answer to that one.
Intangible Assets AND Liabilities
We all spend a lot of time talking about intangible assets and I like to call intellectual capital assessment the new balance sheet. But, of course, a balance sheet needs to show both assets and liabilities. And we all spend much more time talking about assets than we do liabilities.
That’s why I was very happy to see Eduardo Longo’s paper at ECIC on The Knowledge Management Role in Mitigating Operational Risk. I think that risks are an important part of intangible “liabilities.”Although Longo uses the language of knowledge management, he is talking about the same kind of things that we do related to intellectual capital. His table on operational risk features four risk “vectors”:
- System/process failure (structural capital)
- Human error (human capital)
- Fraud (this can emerge in all three kinds of IC)
- External events (relationship capital)
For each of these vectors, Longo identifies related information and knowledge factors as well as the business impact. Since intangibles are a system, it can be hard to draw lines between each component. But we must get more disciplined about our view of the 70-80% of business value that is intangible.
I hope we can open a dialogue on this important issue. It would be great to hear from folks out there about how they look at intangible risks. Feel free to email me or comment here.
Taxing Intangibles: Where Will It Lead?
Ken Jarboe at Athena Alliance has an interesting two-part discussion on new proposals for taxation of intangibles. The idea is that the Obama administration wants to make it harder to companies to move income off shore and out of tax jurisdiction. They do this by moving intangibles (like where they book workforce in place, goodwill and going concern value) off shore. Interesting twist on the growing value of intangibles in business.
Please, No More IC Mousetraps
I got back from the European Conference on Intellectual Capital a couple weeks ago. There were a lot of interesting talks but with the benefit of a little hindsight, I think they fell into two categories:
Number 1: Better mousetraps. Many of the papers described a new model or methodology for analyzing intangibles. These models usually include lots of boxes and arrows. Even to an IC geek like me, they can be mind-numbing.
These papers are not alone. The number of models that have been created for the identification and assessment of intellectual capital in the past decade or so is enormous. There are 30+ methods on Karl-Erik Sveiby’s list of Methods for Measuring Intangibles from 2004. Ken Jarboe at Athena Alliance documented yet more approaches in 2007 in Measuring Intangibles: A Summary of Recent Activity.
There have also been major efforts by the governments of the European Union, Japan, Germany, Denmark, Hong Kong, to name just a few. None, by the way, in the U.S. I have mixed feelings about that…
Number 2: The other kind of content was the micro study. Academics have to develop statistical studies of their subject matter. So a common approach is to pick off one specific question and then subject it to systematic investigation. Not wrong in its essence. So we are slowly accumulating data points but we fail to see the forest for the trees (just saw this used by an Englishman recently as wood for the trees–hope the idiom translates one way or another).
What was missing? Real people. Real companies. Real practice. So much of what has been going on is in an ivory tower. Those of us fascinated by the subject continue to tinker away at it. But where are the businesspeople? None of these ideas will gain great acceptance unless and until they are put to use in companies. Solving real problems. I think it’s out there but it is not coming through in these venues.
The paper that Peder Hofman-Bang and I presented IC: Ready to Cross the Chasm (co-authored by Henrik Martin and multiple partners of the IC Rating network) told the story of eight of the 430 companies that have use the system over the years. It was a learning experience for us as we found that the managers valued the Rating experience but were still struggling to tie it to their financial results. We are working on answers for our own community (one example is this presentation called Knowledge is the New Oil). But there needs to be a bigger solution, a bigger conversation.
The times require innovation in energy use, sustainability, food production, and almost every corner of our economies. Luckily, the times also offer continued opportunities to accomplish this innovation through new technologies. Intangibles are already 70+% of the value of the average company. Managing intangibles explicitly and expertly is, it seems to me, critical to our collective ability to rise to the challenges of our times. But it is still not happening.
How will this happen? How can it happen? What can we do about it?
New Research from IC Rating Community
IAM Magazine recently published an article that I wrote with Peder Hofman-Bang of Intellectual Capital Sweden entitled The Weakest Link in Corporate Intellectual Asset Management.
The article examined the combined results of over 430 intellectual capital ratings that have been performed using the IC Rating tool. These ratings have been conducted all over the world during the course of the last decade or so.
IC Rating is one of the few intellectual capital evaluation systems that is comparable and has been used on such a broad scale. So these results are an early indication of the power of IC management in foward-looking companies.
The study found that the ratings of the companies’ IC portfolios and the strength of their IC management shook out as follows (from strongest to weakest):
- Human capital
- Relationship capital
- Structural capital
Structural capital includes both process management and intellectual property (IP). Of these, IP management was the weakest.
There are great lessons for companies in this. The strength of process capital is the most important determinant of a company’s ability to grow and scale. The marginal cost of human capital and relationship capital growth can be significant. However, the marginal cost of good structural capital (once developed) can be close to zero.
We have seen this multiplier effect of structural capital in a number of recent cases. Getting this right can provide a huge boost to companies–even in these challenging times–because of the low cost of many fixes to structural capital management. So it is VERY IMPORTANT for companies to work on this aspect of their IC management.
If you want to hear more about the power of IC Rating, please contact anyone on our team!