According to SearchCRM.Com this is the definition of Intellectual Capital:
Intellectual capital is knowledge that can be exploited for some moneymaking
or other useful purpose. The term combines the idea of the intellect or
brainpower with the economic concept of capital, the saving of entitled
benefits so that they can be invested in producing more goods and services.
Intellectual capital can include the skills and knowledge that a company
has developed about how to make its goods or services; individual employees
or groups of employees whose knowledge is deemed critical to a company's
continued success; and its aggregation of documents about processes, customers,
research results, and other information that might have value for a competitor
that is not common knowledge.
What with the blizzard of buzz words flying around the business world these
days, it’s easy to lose sight of the basics. It’s a good definition
and it’s quite simple isn’t it? Sorry, I shouldn’t have
said that. There are ten thousand consultants out there insisting everything
is complex. There’s no money in simple. It’s a lot easier
to sell complex.
Here’s an absolute fact. As long as this capital is only in the employee’s
head, not written down, video taped, put on whatever medium you chose,
made available for distribution, the company that thinks it possesses
that capital, is at risk.
Joe the engineer’s head is not a Swiss bank vault. Swiss banks will
probably be around when people on earth are having lunch with those aliens
hiding out at Area 51. Joe may decide to run off to Bora Bora with Suzy
the shirt salesperson at Sears. If he does, he’s going to take his
intellectual capital with him. He won’t care if his capital is in
your bank or not.
By the way, if you are the manager of a small company—perhaps you
only have ten or twelve employees—and you have just said to yourself,
this isn’t for me; please reconsider. In a way it is even more important.
You may only have one engineer, or one employee with a particular skill.
You lose him or her and you are well and truly up the proverbial creek.
More on this: If you are only thinking of Intellectual Capital in terms
of some esoteric, patentable process you have developed, think again.
Remember what happened when the gal who filled and setup the stamp machine
was out with the flu and she was the only one who knew how to do it? Three
other people got involved trying to figure it out. It took three hours,
ruined a roll of blanks and made you hostile. Fill in your own idiotic
time waster in the space above. What she knew how to do in five minutes
is most definitely Intellectual Capital.
Here’s a true story to illustrate the risk of ignoring the value
of Intellectual Capital. For five years I taught, Total Quality Management
(TQM), Statistical Process Control (SPC), Deming, Team Building and many
of the other skills that come under the TQM umbrella. I had a contract
at a medium sized technical manufacturing company (350 employees). My
charter was to teach the skills noted above to every employee, from janitor
to CEO. The consultancy was a combination of classroom, mentoring and
practical exercises in the manufacturing environment.
If I were asked now what I thought was the most important ability of an
instructor/mentor, I would say getting people to talk about what they
do and then listen excellently. People told me things. They complained,
whined, and bitched. They literally poured their hearts out. There’s
a lot of loss and disappointment in the average work place. They knew
what was wrong but no one asked them about it. This story is one of the
things I was told.
Six months before I arrived a new COO came on board. He was a dyed-in-the-wool
hunter-killer type from Wharton with an MBA and dreams of becoming CEO
of FORD. He decided that a general belt tightening had to happen. He must
have convinced the CEO, as there was no objection from above. Managers
in every department were ordered to look around and report on how this
could be achieved. The stated goal was a 15% reduction in overhead of
One of the first things he did was order a salary review of all employees
making over $50K a year. A list was made up of who had to go. Against
the advice, pleading and screams of agony from the line managers he brought
out the axe and chopped heads. I think it is axiomatic at the ‘better’
business schools that the best way to improve the quarterly reports is
get rid of employees. Apparently they don’t teach Deming at Wharton.
We Deming adherents would paraphrase another famous quote and say, “cutting
people is the last refuge of the incompetent.”
This company manufactured various products for the aviation industry. One
of these products was pressurized vessels that were part of aircraft on-board
fire suppression systems. Testing of these vessels was key as the FAA
has more rules than the IRS before they could be accepted. Joe, a very
clever senior engineer, built the pressure testing system. [He definitely
made more than $50K per year] It was an elaborate system that required
frequent adjustment. No one thought to get all of the procedures written
down. This engineer was a popular guy who had no interest in moving on
to greener pastures. He had been working there since the company was formed.
A Monday morning arrived and he found a pink slip in his in basket. Easy
to imagine how he felt. He was given his two-week notice. He said, to
hell with it and went home. Friends tried to call but he wouldn’t
answer the phone. Why should he? He certainly must have felt betrayed.
Three days after this the pressure vessel test system failed. At that time
they were running two hundred of these vessels, from a dozen contracts
with major airlines through the test system every week. No one except
the engineer who was now sitting at home watching day time soaps and sulking
knew how the system worked. There were some poorly written procedures
but nothing that provided and in-depth explanation of how to align and
Joe’s manager passed the word of the system failure up the line.
He was very angry. He tried his damndest to save his engineer to no avail.
He warned them this was a seriously stupid thing to do. Meetings were
held. The shouting and bad language was heard all the way out on the production floor.
The COO said, “well, call him up, get him in here.” The manager
replies, “I can’t do that, you fired him.” “So,
go to his house, tell him we need him.” The manager who was now
totally enraged and didn’t care if he was the next to go said, “you
go to his house, &*^%^*% for brains, you fired him.”
More engineers were brought in to work the problem. They actually got the
system running but now the system had to be recalibrated and at this they
fail utterly. It went on for a long time. Many engineers and technicians
became involved. Some, as might be expected, made the problem worse when
they tried to correct something they did not understand.
Finally they got Joe on the phone. They explained the problem to him. Great
silence. He’s human; he has been crapped upon from a great height
and has no intention of making it easy. He said, “have the &%^^
head who fired me call.” He hung up. The CEO, who was on a fishing
trip in Baja California, Mexico, was brought into it. Need-less-to-say
his instructions to the new COO were painful, loud and to the point. “You
go get Joe in even if you have to kiss his patoot every step of the way.
You made the problem, go fix it.”
He called Joe and pleaded. “What do you want?” Joe said, “A
consultants contract for two weeks at $300 an hour, eight hours a day
guaranteed regardless of how long it takes to complete the work, to be
paid before I start.” The COO had no choice. He had to agree. Manufacturing
was piling up untested pressure vessels and customers were asking questions.
There was a couple million in deliverables sitting in the warehouse gathering
dust, the company’s reputation was at stake and the contracts were
absolutely important to the company’s survival.
As you might guess, it took Joe all of a day to fix everything and get
the system recalibrated. Now, because you the reader are much smarter
and more experienced than the Wharton shark, you naturally would have
had someone watching every step Joe took to get things running again.
You would have your videographer and tech writer in Joe’s lap memorializing
every step he takes. He wouldn’t be able to breathe in without someone
asking him, “Joe, why did you breathe in at this particular point
of the process?” I am sorry to tell you no one was there to get
this crucial data recorded.
He was called in several more times before I arrived. It was like having
a lawyer on retainer, and nearly as expensive. I gave the problem to a
Cross Functional Problem Solving Team. Their charter was to get the data,
all of it. The smart thing would have been to give Joe a nice raise and
hire him back. And in the world of prose, the new idiot COO would have
been sent back to Wharton and taught that greed and ambition do not necessarily
improve the bottom line. This did not happen. The COO was replaced quietly
about three months after I was given my contract. I wish I had had something
to do with it. I didn’t.
Joe was a large deposit of intellectual capital. This particular company
had many people like him. Every company that I have ever worked with has
people like Joe, at every level and department of the organization. And
still, every company I worked with reinvented some wheel that had already
been nicely designed because no one bothered to get that Intellectual
Capital firmly deposited in the company’s bank.
If you want to know what it costs to have Joe close his account, read Crosby’s
“Cost of Quality” carefully and apply it rigorously. There
are many well thought out methods to accomplish this most important task.
It’s very expensive not to have your own bank filled with the Intellectual
Capital you have spent thousands, even millions to develop. My advice
is lose the madcap idea that the only way to improve the bottom line is
let people go. There really are better ways to improve the numbers in
your balance sheet. And just for the record, intellectual capital lasts
far longer than seasonal blips in the quarterly report.
Finally, people leave companies. They do so to advance their careers, for
personal reasons, and sometimes they just get bored. If you haven’t
captured their knowledge it costs far more than double to duplicate it.
Norman Taylor & Associates