IC : THE ULTIMATE RENEWABLE RESOURCE
Karl Erik Sveiby, a founding father of knowledge management, defines it as ‘the art of creating value by leveraging intangible assets. To be able to do that, you have to be able to visualize your organization as consisting of nothing but knowledge and knowledge flows’.
His countryman, Leif Edvinsson is a master at such visualizations but his international renown is built more on his contribution to the theory and measurement of intellectual capital (IC). Edvinsson, who received the prestigious international ‘Brain of the Year’ award in January, is VP and corporate director of intellectual capital at Skandia of Stockholm, Sweden and has overseen creation of the world’s first IC annual report. This year’s IC Prototype Report, Skandia 1998 is entitled Human Capital in Transformation.
Edvinsson defines IC as ‘the sum of structural capital and human capital, indicating future earnings capability from a human perspective. The capabilities to continuously create and deliver superior value’. But he does not believe that IC is the exclusive domain of the private sector and takes pride that Sweden has issued a national IC report (as has Israel).
At the invitation of Canada’s Public Service Commission and Department of National Defence, he gave a public lecture in September on Intellectual Capital: The Next Transformation of Our Modern Economy, during which he expressed concern that the public sector was adopting old private sector change models in attempting renewal. He suggests that the new model of intelligent enterprising is characterized by a global perspective and strategic learning. It encourages culture to lift the organization to the next development curve, navigation systems that complement financial accounting, and knowledge recipes for innovative value transformation.
He used some powerful imagery to probe the metrics of IC — e.g, a picture of a preteen staring out with intelligent eyes at her world. What to call her generation? His answer the click and go generation. To that computer and web literate generation the now is the 12 to 14 seconds it takes them to decide that they are interested in what they are seeing, or they click and move on. He impishly points out that she is in close proximity to the delete button.
(Incidentally if you think 14 seconds is not a long time read Stephen Hawking, or Jeff Settembrino, a fellow recipient of the ‘Brain of the Year’ award, on the opening moments of the universe.)
Edvinsson emphasizes the importance of cycle time. A book takes 18 months to produce about as many words as a daily newspaper turns around in a shift (8 to 12 hours). CNN’s cycle time is about 15 minutes for significant news. He unhappily suggests that’s about how long it takes a negative rumor to circulate and sap the morale of an organization. What about renewal time? He suggest that out of the 2,000 hours we devote to work annually, something less than 60 hours are devoted to how to get to the future. Have we got 20 or 30 years to renew our organizations at this rate?
On the relative importance of human and structural capital, he says the former might be thought of as an employee’s competence, relationship ability and values. Structural capital is the value of what is left when all the human capital has gone home. His final reminder to the brass and the bureaucrats is that IC is governed most closely by the ‘law of increasing marginal utility,’ developed by Paul Romer and Brian Arthur. This means that it increases in value exponentially the more it is applied and shared. IC is an infinitely renewable resource.
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