The Immeasurable value of Intellectual Capital

The Immeasurable value of Intellectual Capital
February 18, 2019 CERM Risk Insights
intellectual

Your most valuable business asset may not be the raw materials, cash reserves, or even the technology found within your company. It’s the knowledge of the people on your team. Yet a good number of executives overlook the value of this collective knowledge, commonly called Intellectual Capital.

Case in point: Several years ago, I attended a meeting with executives and managers from one of the largest automobile manufacturers in the world. One of the top executives stood before the large crowd and exclaimed that their most valuable asset was their brand recognition. At that point, I knew this company was heading for trouble.

As I watched the business news headlines over the next couple of years, I could see how this icon of American manufacturing struggled to survive and, ultimately, lost its foothold.

The lesson: Brand recognition is very important, but there are other things that are even more valuable to a company’s health and longevity. One of those things is something less tangible but extremely impactful.

Intellectual Capital Can Be Leveraged 
Intellectual capital is a term used in business school to teach executives the importance of taking into account the value of intangible assets. The three dimensions of intellectual capital are Human, Relational and Structural.

These are all exactly how they sound – human resources are your company’s people; relational capital is composed of your relationships with customers, vendors and other constituents; and your business structure includes infrastructure, processes, and databases of information. An example of structural capitol is intellectual property.

Over the past 30 years, I have observed that the most valuable assets of an organization tend to be the knowledge, talent, experience, capabilities, and vision of the people within the organization. These, coupled with the value of their patents, customer bases, and good will, equal what is called their intellectual assets.

Managing Intellectual Capital
When leaders understand how to formalize, capture, and leverage their intellectual capital to produce higher-valued assets, your profits tend to soar. There is even an emerging business strategy that focuses on creating, shaping, updating and taking “stock” of intellectual capital.

It requires having the strategic vision to blend all dimensions of intellectual capital (people, relationships, and structure) to develop a management system that is measurable yet pliable enough to change how the intellectual capital dimensions are blended.

There is more to the process than will fit into this one article, but the concept is this: By using a multiple stage process that is governed by evolutionary logic, the intellectual capital management includes four interconnected sets of practices: Strategic alignment, exploration and exploitation, measurement and reporting.

The Knowledge Era Made Way for Intellectual Assets 
One important part of capitalizing intellectual capital is to keep the knowledge pipeline full. One of the best ways to do that is to convert information into knowledge.

A number of years ago, I predicted organizations worldwide would create new economic value by converting information into knowledge, sharing that knowledge internally to increase its value, and then selling it in non-competing industries to a global client base. When the icon-based, user-friendly World Wide Web spawned a new digital industry in a short amount of time, organizations began to want their intellectual property formalized, captured and leveraged for higher values. And they wanted it online.

It became known as the Knowledge Era or Knowledge Age in contrast to the Industrial Age. The end of the 21st century saw an advanced form of capitalism, one where ideas and knowledge stimulated economic growth even more so than labor, land, money or other tangible resources.

Around the same time computer companies saw their profits shift from hardware manufacturing in the 1980s to software creation in the 1990s, businesses of all sizes and in all industries started using web-based technology to leverage the talents, knowledge and wisdom of employees to create high-margin products.

Three Must-Have Components to Create Intellectual Capital
When I consult with executives today, I walk them back through the components that were necessary to leverage a process for monetizing intellectual capital.

  1. Everyone in the organization must see the tremendous opportunity and added value in going beyond the current activity of converting data into information, to higher levels of value by creating and delivering knowledge and wisdom, which clients can quickly act upon. In addition, auditing and valuating intellectual assets must be seen as a strategic direction.
  2. Everyone in the organization must see that its technology infrastructure and organization are the keys to unlocking the vast wealth the Knowledge Era had to offer, both for the organization and your clients. Knowledge increases in value when it is shared within the organization and that means the Communication Age could not have come at a better time. Informing someone of your knowledge is very different than communicating with them. That’s why a knowledge-sharing technology strategy, focused on fostering two-way communication and dialog, is so crucial to organizations achieving their goals.
  3. Everyone in the organization must see the importance of his or her own participation as essential to building a strong foundation for the enhancement, sharing and delivery of knowledge. You get the behaviors you reward; there must be a rewards system for sharing knowledge. I like to remind my consulting clients that there are many ways to reward people, and not all have to involve money.

At this point in time, technology is no longer a barrier to creating a Knowledge Era enterprise. Below is a case study about a knowledge-based product that was created in the midst of this era and serves as a great example of the value of intellectual capital.

Mayo Clinic’s First Knowledge-Based Product
In the 1990s, one of the largest health systems in the country, Mayo Clinic, was looking at a future of decreasing reimbursements for Medicare and Medicaid and increasing losses in its emergency rooms. For the Mayo Clinic and other health systems, the future looked bleak.

In a consultation with their executives, I asked a simple question: “Why don’t you sell your knowledge?” Though their initial response was skeptical, further thinking led them to put Mayo Clinic knowledge on a CD. Any time, day or night, people who purchased the CD could put it in their PC and determine if, for example, their child’s rash and fever required just aspirin or a trip to the emergency room.

The Mayo Clinic put a $100 price tag on its CD product when it first came out, and in the first year I was told it sold 670,000 copies. A light went on for the clinic executives; leveraging internal knowledge could create value.

It was its first-ever knowledge-based product and it was a precursor to not only MayoClinic.org, but a host of other online consumer health information portals. One side benefit it discovered was the impact on the Mayo Clinic brand; by using knowledge as an asset, Mayo Clinic developed a new and powerful image in the healthcare marketplace.

Knowledge Is (Branding) Power 
In the past, in order to get help from the Mayo Clinic, you had to go to one of its locations. But with a CD of knowledge that was then translated into French, German, Spanish, and Japanese, the clinic could help people anywhere around the world at any time. And, keep in mind, this was long before the phrase 24/7 accessibility became popular.

From there, Mayo Clinic decided to customize the knowledge product for various audiences, including elementary schools, high schools, medical schools, and nursing homes.

The result was new value and new revenue; it had opened its customer base up not only to people who are geographically close, but to the world. And in the case of the Mayo Clinic, the name recognition isn’t regional or national anymore; it became international.

Are you leveraging the most valuable assets in your organization?

If not, what are some ways you can convert information to knowledge and then productize it for revenue? If you get stuck, I recommend using your Anticipatory Organization skills to determine what intellectual assets will be important to your consumers in the next 5 years and beyond.

by Daniel Burrus

Daniel Burrus is considered one of the world’s leading technology forecasters and innovation experts. He is the CEO of Burrus Research, a research and consulting firm that monitors global advances in technology driven trends to help clients profit from technological, social and business forces that are converging to create enormous, untapped opportunities.

He is a strategic advisor to executives helping them to develop game-changing strategies based on his proven methodologies for capitalizing on technology innovations. He is the author of seven books, including The New York Times bestseller Flash Foresight, and his latest book The Anticipatory Organization.

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