It is becoming increasingly recognised that the most important and sustainable source of competitive advantage is the effective use of knowledge or intellectual capital. This end result is associated with the effectiveness of the learning mechanisms and arises from a wide variety of sources, including from relationships with customers and suppliers. These factors are rarely explicitly referred to in the company's formal reporting system and 'intellectual capital' frequently risks being ignored by managers -- often with disastrous consequences for the long term future of the organisation.
The authors recognise the critical importance of these issues and they present a number of valuable insights gained by leading experts in practice, research and consulting. The book develops concepts, models and tools that enable readers to be much more insightful on how to visualise this critical, but intangible, side of the company.
The authors well structured approach starts with the definition of intellectual capital ("We see intellectual capital as a language for thinking, talking and doing something about the drivers of companies' future earnings") and what its main components are, and then takes the reader step by step through the development of an organisational process that enables the intellectual capital to be visualised, measured and managed within their organisation. Their approach includes a survey of both the latest intellectual thinking and practice of '2nd generation' users, as well as with a basic 'process model' and relevant case studies. Finally an attempt is made to consolidate the intellectual capital measures into a single IC-index which is linked with shareholder value creation. "The main benefit of an IC-Index is making uncertain and subjective feelings about what is happening in the company more visible, thus forcing management to discuss the issues and come up with a solution."
However, while the IC-index can be a valuable tool, if used properly, it is essential to avoid the risks of breaucratisation, found extensively in the use of other management techniques such as TQM. The best results of the use of these concepts arise when they are so embedded in the thinking and behaviour of the organisation that they are, in essence, intuitive to individual behaviour and relationships. In order for this to be effective it is essential that the underlying culture is one where the culture is based on 'sharing knowledge' rather than 'knowledge is power'.
The role of intellectual capital and knowledge management in alliances is rarely well understood and implemented; often because of the existence of too much indulgent 'power culture' behaviour. The authors explores the critical links with strategy, learning and core competencies but there is a need to integrate rather than separate strategy and masurement (p15).
There is, perhaps, a natural tendency for the authors to focus on the corporate sector -- but replacing the word 'company' with 'organisation' would help recognise that the issues raised are also relevant to the public and not-for-profit sectors. (ie The need to develop other output, or success measures not just shareholder value.) The key questions are: Where does intellectual capital really arise in your organisation? And how is it effectively developed and used? The critical point to recognise is the link between effective management of intellectual capital and oganisational success -- however measured.
The approach taken helps organisations identify what they are good at, and then ensuring that they focus energy on exploiting those competences effectively; or, if they strongly believe that they wish to undertake other activities, they are aware of their deficiencies and how they can be corrected.
It is essential that all these issues are effectively integrated with organisational learning in general and strategy formation and implementation in particular. In essence, strategic thinking and the processes of the organisation need to be seen as the vehicle through which intellectual capital is developed and used in the long term interests of the organisation as a whole.
All organisations need to identify and measure the effectiveness of their critical success factors and the main value of whole approach taken in this book is that it emphasises (re-emphasises) that a (the?) critical success factor for any organisation is the effective development and use of the people in it. The authors explore a new meaning for mnagement, which rediscovers the importance of people development for long term organisational performance. This approach also highlights the importance of trust (only mentioned in passing) as the lubrication for success.
The authors, rightly, argue: "Learning organisation theory concentrates too much on the development of knowledge and not enough on its exploitation." If this is a weakness, it essentially arises primarily from lack of integration with an effective strategy. Human capital is 'The Soul of the Company.' Hence it is vital to address issues such as those rised by Charles Handy (seeThe Hungary Spirit.).
The whole question of the role and development of intellectual capital is very relevant to the management of educational institutions themselves (be they business schools, universities, or even nursery schools). Ufortunately it is very rare that these critical organisations actually practice what they are attempting to preach. The need to develop an IC index for a country, at a national level, was also recognised.
This book addresses a vital subject in the increasingly competitive environment in which organisations are now operating. Read it before your competitors do, or you are likely to be at a substantial disadvantage. In the long run we should all benefit from a greater focus on effective use of the intellectual capital of everyone in the organisation and society in general. Unfortunately the adjustment processes are likely to continue to be painful, especially for those who have left it late to address the issues raised in this book. The authors are well respected authorities in this area and there is much to be gained by reflecting (and acting) their, well presented, distilled wisdom; it will not be the last word on the subject but is it probably the best available summary of the current state of play.
Dr. Bruce Lloyd, Principal Lecturer in Strategy, South Bank University.