There is an increasing recognition today that knowledge, or intellectual capital, is of greater significance to the success of a modern organization than physical capital. Consider the following:
- “Market-to-book ratios of U.S. companies are now roughly 2-to-1, roughly double the average between 1945 through 1990,” Lowell Bryan wrote in 1997.
- “Roughly 40 percent of market value of the median U.S. public corporation was missing from the balance sheet,” Lester Thurow wrote in 1996.
- AOL exchanged $146 billion in stock to acquire Time Warner, whose net tangible assets were valued at $9 billion.
- In 2000, Business Week added intellectual capital as a new measure to its review of American M.B.A. programs. This reflected a school’s “quality of the scholarship and the ability to influence thinking in the business world at large.”
- Skandia, a pioneer in measuring and promoting intellectual capital, has found that by using intellectual-capital techniques, start-up times for its new offices have been reduced by at least one-third. It has also seen major savings in training.
What Is Knowledge Capital?
Knowledge capital exists in two ways. First, it exists within the minds of the people who know something useful that will make the organization more productive. Second, knowledge capital exists as content. In this sense, content is the formal “written down” expression of knowledge capital.
The classic way knowledge capital was created and transferred within an industrial economy was through apprenticeship models. Young workers gained their knowledge through working with older knowledge workers. There is no better way to gain knowledge than through learning by asking, watching, and doing.
Content Is Key
However, the apprenticeship model for the transfer of knowledge has been in decline for the last 30 years, due to globalization, downsizing, outsourcing, and the development of the “virtual corporation.” The result is that while knowledge capital is more important than ever for the success of a modern organization, the old models for creating and passing on knowledge have been in severe decline. The new model, which organizations must become proficient at, is the content model.
Content is to the information economy what oil is to the industrial economy. It is THE key resource — the key way that knowledge capital is expressed. Strangely, within most organizations, the true benefits and costs of content are very poorly understood and measured.
The discipline of knowledge management has sought to bring a more scientific view to content — to how knowledge is created and managed. There is little real success so far. Organizations have a warm, fuzzy feeling about content. They know it is important. Many managers recognize that content is critical. Few know how to go about professionally measuring this critical resource.
“Knowledge capital predicts market performance with more accuracy than does either operating cash flow or net earnings,” CFO Magazine wrote in 2000. “Managing knowledge capital will be critical for organizations to create a sustainable, competitive advantage,” CFO quotes Harvard University accounting professor Robert Kaplan as stating. “Today, the long-term success of organizations comes from their knowledge-based assets — customer relationships; innovative products and services; operationally excellent processes; the skills, capabilities, and motivation of their people; and their databases and information systems.”
A key challenge for the modern organization is to clearly measure the cost versus the benefits of the content it creates. This is not an easy task, but if you can’t measure the key resource that delivers you benefits and costs you money, then you can’t manage.
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