We’ve all seen/heard the media reports about the demise of industries and jobs that require only medium or low levels of skill: the closure of steel production; the loss of call centres (some going overseas); the incipient decline in manufacturing; the increasing demands from industries under threat and unions for greater and greater protection; the development of automated mining trucks (no driver required); increasing roboticisation of production lines. And the change continues apace. Since the 1970’s the Australian economic base has been shifting from primary and secondary based industries to those which are service based.
This little graphic is illustrative of such a shift.
Back in 1997 Thomas A. Stewart (Intellectual Capital: The New Wealth of Organisations) was discussing this change but focussing more on what was driving the shift (excluding cheap labour) – the rise of the knowledge economy. So we can’t really say that we haven’t seen it coming! Nor why we appear to be doing little to address what’s happening now.
We are in the midst of a transition. The development of human society has seen the passage from one that was predominantly agriculturally based to one that was industrially based. It is now entering a stage where the capacity to generate and apply knowledge is replacing capital as the driver of enterprise. We are becoming a knowledge based society and so are our businesses.
It’s suggested that a knowledge based society is identifiable by the key features of:
- knowledge (in its many meanings) becoming increasingly important, not only as production factor but also a commodity which can be traded. Knowledge is no longer power but also wealth
- an on-going explosive growth in scientific knowledge with rapid advances made possible by information sciences
- job specific knowledge increasing and those in less intellectually demanding jobs needing more knowledge to work effectively
- knowledge multiplying at high rates forcing the more rapid transformation of society
- the ready availability and use of information technology tools giving more people than before the ability to access more information than before, and
- new basic practical skills are required in the society.
Even a cursory evaluation of these features demonstrates that Australian society is becoming increasingly knowledge based. Additionally, an evaluation of Australian businesses, leads to the inevitable conclusion that despite significant investment in capitalised infrastructure, successful businesses are also becoming knowledge based organisations. In fact more and more businesses are becoming entirely knowledge based. With time it will become even more so in both developed, and developing, economies. The race is truly on!
How then do businesses, and you and I as workers, take advantage of the changing circumstances and maintain economic viability during such societal change? One way is by effectively managing all our assets (including the knowledge assets) and by investing in the acquisition of knowledge that will benefit us over the long term. The other is to recognise that change is happening and adapt to it.
Why do I include people in the equation? When you think about it pretty much the same issues face homo sapiens ssps Australis as those faced by a business. You have to run your little enterprise (your life) in the same economic and societal climate as others and Australian business. So from this point on, the comments made refer equally to a business, and to your life. From now on I’ll use ‘enterprise’ to refer equally to Australian businesses and to homo sapiens ssps Australis.
In many enterprises it can be extremely difficult to provide estimates of the true cost and the value added when asked: “How much of your enterprises costs and benefits related to the delivery of products and services are associated with capturing, storing, processing and using information about employees, customers, service providers, infrastructure, operations?”
Any enterprise consists broadly of three types of assets which, when appropriately used, can generate success. These are its:
- Monetary Assets (net working capital) [For Little Old You think ‘savings’]
- Tangible (Hard) Assets (anything valued with physical dimensions that is traditionally accounted for in the balance sheet), and [LOY: house, car, etc]
- Intangible or Intellectual Assets (anything valued without physical dimension that is embedded in people (employees, customers, suppliers) or derived from processes, systems and culture associated with the enterprise. Along with goodwill and Intellectual Property, Research and Development is also recognised as an Intangible Asset. [LOY: intellect, education level, particular expertise, experience, etc]
Depending on the type of enterprise the ratio of the different assets will vary. For example: A bank might have the bulk of its assets as Monetary; a manufacturer as Tangible; a software company as Intangible. What might be the ratio in the LOY enterprise?
There will always be a component of any enterprises’ assets which are Intangible. However, management of this knowledge has, until recently, been an “ad hoc” affair. Increasingly enterprises are improving their abilities to manage and maximise the leverage of their Intangible Assets. I suspect we can’t say the same for homo sapiens ssps Australis. To put it crudely: ‘Adapt or die!’
Intangible Assets are being recognised as large contributors to an enterprises’ market value and the renewal and effective deployment of Intangible Assets is emerging as a critical competency. This leveraging of Intangible Assets is being seen as a way to develop and maintain competitive advantage. Both for businesses, and for homo sapiens ssps Australis!
Intangible Assets are increasingly being referred to as Intellectual Capital and enterprises are now beginning to focus on managing this capital more effectively, both in improving overall performance and in delivering competitive advantage. This is because Intellectual Capital is overtaking financial holdings, real estate, inventories and other Tangible Assets in reflecting the most valuable part of many enterprises.
Taking some industry examples: In 2006, General Motors (symbolising the industrial era) with considerable Tangible Assets had a market capitalisation of around $US40 billion. Microsoft (symbolising the knowledge era) with few Tangible Assets had a market capitalisation of around $US70 billion. How things have changed. GM filed for bankruptcy and was bailed out by the U.S government. It now appears that GM will file for bankruptcy again. Microsoft? It still remains solvent.
One of the major proponents of the value of Intellectual Capital management, Thomas A Stewart (1997), made the following remarks: “Systematic management of Intellectual Capital creates growth in shareholder value [LOY think ‘you and your family’]. This is accomplished, among other things, through the continuous recycling and creative utilisation of shared knowledge and experience. This, in turn, requires the structuring and packaging of competencies with the help of technology, process descriptions, manuals, networks, and so on, to ensure that the competence will remain with the enterprise when the employees go home. Once packaged, these become part of the enterprises structural capital–or more precisely, its organisational capital. This creates the conditions for the rapid sharing of knowledge and sustained, collective knowledge growth. Lead times between learning and knowledge sharing are shortened systematically, human capital will also become more productive through structured, easily accessible and intelligent work processes.”
Thanks Tom! All very nice for a company but it raises some interesting issues related to LOY and the real value of your Intellectual Capital. But more of that hot potato another time!
So Intellectual Capital is knowledge that can be converted to profit. This definition encompasses, inventions, ideas, general know-how, design approaches, computer programs, processes, and publications. Note: LOY plays a pretty significant role in the creation of this stuff! And gets paid for doing so. There are three broad categories of Intellectual Capital:
Human Capital comprising the collective expertise, creative capability, leadership, entrepreneurial and managerial skills embodied by the employees [that’s LOY] of the enterprise;
Structural Capital comprising technologies, methodologies and processes which enable the enterprise to function, basically those elements which make up the way the organisation works [LOY (and others) helped create these]; and
Customer Capital comprising the ongoing relationships with people or organisations to which the enterprise sells its products and services [LOY sells your product/service to your employer/contractee].
Note how easily such definitions can transpose from a business enterprise to your life enterprise.
So what am I trying to say here?
Firstly. Any enterprise (including Little Old You) is an expression of its knowledge and intellectual activity, and this is intrinsically valuable. You function as an entity, you provide for yourself (and perhaps others). Your creativity improves your life in some way and, coincidentally, the Intellectual Capital you have (and create) is/can be of value to others.
And, secondly. If you are interested in a productive and rewarding future then your Intellectual Capital represents your competitive advantage. This is how you sustain yourself in a modern society. As modern society is increasingly driven by knowledge economics more so that by industry or agricultural economics, acting in ways to create, update, and improve your intellectual capital seems to be a logical and sensible way to proceed. Ensuring that your offspring get the best opportunities in education also seems logical.
These are also very good reasons why Australia should have the very best in education and training, retraining opportunities that are not solely accessible based on the ability to pay.
So where do you want to be? In the parade – or standing on the sidelines watching it pass you, and your little enterprise, by? And if you’ve stood on the sidelines, don’t be too disappointed when the parade has passed. After all, it was your choice! And that really is food for thought . . . . . . . .!