Knowledge is capital, the rest is just money

Citation

Felton, S.M. (2002), "Knowledge is capital, the rest is just money", Strategy & Leadership, Vol. 30 No. 3. https://doi.org/10.1108/sl.2002.26130cae.001

Knowledge is capital, the rest is just money

Knowledge is capital, the rest is just moneySamuel M. Felton

The Wealth of Knowledge: Intellectual Capital and the 21st Century Organization Thomas A. StewartCurrency DoublewayNew York2001320 pages For the past several years I have spent roughly 50 hours a week scouring business books, management magazines and journals, and business newspapers looking for practical ideas of interest to business executives. Exceptionally useful books that chart new territory are quite rare, but in my opinion Tom Stewart's The Wealth of Knowledge: Intellectual Capital and the 21st Century Organization should be recognized as one that does. Stewart offers executives a primer for business success in the ever-accelerating information age - also known as the knowledge economy. For many executives, to survive in the knowledge economy they must quickly learn a whole new game, at least in terms of the relative importance of knowledge in the role of creating value and improved profitability.

The Wealth of Knowledge is a gold mine of information about how many organizations are managing and leveraging knowledge to improve competitive position and profitability. In the continuous battle to acquire, serve, and retain customers profitably, the winning organization learns to continuously outsmart and out maneuver its competition faster and more decisively as it pursues its chosen strategic direction. Operational success depends increasingly on learning faster and applying what is learned more effectively than your competition can. But Wealth also offers valuable insights on how to redesign core corporate and business strategy to make knowledge a major source of competitive advantage. Stewart's message is that competitive advantage - both operational and strategic - is largely a function of how well organizations acquire, manage and leverage their intellectual capital and the knowledge it represents. In addition, Wealth teaches us that organizational knowledge and the ways successful companies use it, are intricate and unique, and cannot be easily replicated by competitors. Therefore, well-managed organizational knowledge can also be a potent form of differentiation and strategic advantage in a brutally competitive, unpredictable world.

Throughout his book, Stewart offers fresh and useful ideas and insights about knowledge management. Here are some nuggets to tempt you to find out how Stewart applies these concepts in a corporate setting:

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  "Ultimately, intellectual assets have become more important than any other has because only by means of knowledge can companies differentiate their work from their competitors."

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  "Knowledge management programs must be linked to the ends for which knowledge is the means."

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  "Companies waste billions on knowledge management because they fail to figure t what knowledge they need, or how to manage it."

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  "It is a principle of electronic commerce that information is ever cheaper, but knowledge is ever more valuable."

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  "A (cost) burden shared is a burden halved: an intellectual asset shared is one doubled."

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  "Creating knowledge products (is) a source of competitive power. (But) you find knowledge products not by looking at your own value chain, but by looking at that of your customers."

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  "Connection, not collection. That's the essence of knowledge management." Please read this over and over again.

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  "Knowledge companies need an organizational design that converts insight - knowledge, smarts, invention - into institutional behavior. They need, in other words, knowledge-work processes."

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  "Innovation is either a machine or a magic garden. Because it is a machine, companies should design it, oil it, power it up, and manage it. Because it is a garden, companies should create conditions under which it can flourish, stand back and let the magic occur, then harvest it."

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  "Value creation itself, more and more, is a collaboration between buyer and seller." The trend toward co-developing products is gaining momentum.

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  "Knowledge is best (developed and) shared within communities." Again, this is worth re-reading several times.

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  "In knowledge companies, networks become the main means by which information is conveyed and work gets done, (all while) hierarchical crutches are knocked away. Relationships depend much more on cooperation than on control - and cooperation in turn depends more on trust."

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  "Think of employees as investors, not assets. Employees invest their human capital - the sum of all they know, all they can do, and all they might become - in their firm. For this investment, they expect an immediate return - that is pay - but also a longer-term one - that is their continued growth."

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  "Generally accepted accounting principles generally do an unacceptable job of accounting for the principal activities of knowledge companies. Accounting, long dead, is not yet buried, and the situation stinks."

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  "What managers and investors need to know is how much cash a business produces over and above what's needed to operate it - free cash flow." I might add that they should also understand when this happy event might happen. Rapidly growing businesses will initially consume more cash than they will throw off.

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  "There is no generally accepted intellectual capital accounting. The field is too young and too much is unknown: you must roll your own. I believe every company should develop at least one measurement that describes the aggregate value of its intellectual capital. The key point is to select ways to measure intellectual capital and knowledge management that illuminate your strategy and your financial performance."

Obviously, it takes exceptional leadership to apply these and the other ideas Stewart offers throughout The Wealth of Knowledge. Accordingly, he contrasts the leadership characteristics that the new knowledge-conscious executives should strive to possess with those needed by the previous generation of managers. Explains Stewart: The leader of the past, was a doer: of the present, a planner and coordinator: of the future, a teacher. To lead now a manager must learn to develop capabilities. Managers' key role is not to plan a company's actions, but to increase its capacity to act, its responsiveness, its repertoire. The new leader must learn to build and nurture intellectual capital rather than to amass or deploy other assets. Unfortunately, this change in roles may require more of an adjustment than some leaders can make.

The Wealth of Knowledge adds to the fine reputation Stewart gained from his 1997 book Intellectual Capital: The New Wealth of Organization. My own enthusiasm for Stewart's crusade to alert business people to the importance of using intellectual capital to advantage dates back to his 1991 Fortune article "Brainpower: how intellectual capital is becoming America's most valuable asset." Fortunately, a decade later, we continue to be the beneficiaries of his crusade.