Intellectual Capital Management - Introduction

Exponential growth of information in the knowledge economy focuses attention on the importance of managing knowledge in organizations. So called learning organizations, those that recognize the value of knowledge within their organizations, can grow and prosper through knowledge management (KM). Much has been written on the subject of KM and the learning organization. An equal number of writings similarly addressed intellectual property (IP) and its potential in securing a competitive advantage and generating revenue. Indeed, it is no secret any­more in the business world that IP can on its own be the core business asset, which underscores the importance of intellectual asset or intellectual property management (IAM/IPM). Little, if any, has been written about the correlation between KM and IAM/IPM and how an organization can use both management approaches to implement an integrated program or system for the total management of its intellectual capital and resources. KM and IAM/IPM are not one and the same despite many similarities in their basic precepts. KM relates to the creation of value, the harvesting of ideas, the mining of employee brainpower, and the conversion of tacit knowledge into explicit knowledge that the organization can codify and transfer. IAM/IPM relates to the maximization of value, the licensing of knowhow, patents and trademarks, and the use of IP to gain a competitive edge, enter new markets, establish strategic alliances, and generate revenue.

Proponents of each management approach admit the benefits of the other management approaches to the bottom line, yet fail to see the connection or the interplay between them. It is true that for some industries, one approach may seem more important than the other. Nonetheless, for any organization to succeed in the knowledge economy, it is essential that it adopt both management approaches to some extent, as each deals with complementary strategic needs. What some organizations fail to see is that KM and IAM/IPM are essential components for the total management of an organization's intellectual capital.

Focusing on one approach to the exclusion of the other would result in a waste of management and financial resources, and the polarization of the management philosophy of the enterprise. This in turn will result in desynchronization between the departments within an organization as well as conflict between the proponents of the different approaches. Attempting to combine both approaches is not the solution. At best, such a combination would be artificial, resulting in disoriented processes and a dysfunctional system. This is because each of these management approaches has a different function, namely, creation versus extraction of value, and to combine them an organization should implement another intermediary management approach: innovation management (IM).

Traditionally, and to date, ICM as a discipline has been divided among IP lawyers and profes­sionals, business managers and consultants, and accountants. Intellectual property professionals call it IAM or IPM (used interchangeably), and limit their attention to the knowledge assets that can be codified and legally protected. They mainly focus on business strategies and techniques that enhance the commercial exploitation of the IP in question. Those with human resources and information technology (IT) backgrounds, however, prefer to call it KM and focus on sharing knowledge that an organization has both in its practices and databases, and that it knows is stored in employees' and customers' heads. Research and development (R&D) and product development people focus mainly on managing the innovation and research process to produce the most efficient results, while accountants mainly experiment with designing metrics to measure IC to enable better investment decision making.

But is ICM new? Since the 1950s, managers from various disciplines have developed a num­ber of management models and approaches to strategically manage intellectual capital, in search of a competitive advantage. R&D management, human resource (HR) management, total quality management (TQM), just-in-time (JIT), and, more recently, conversation management are all approaches attempting to manage one form or another of IC. In today's ICM terms, R&D man­ages human and process capital, HR manages human capital, both TQM and JIT manage process and structural capital.4 So what else does ICM has to offer?

The thesis of this book is that ICM should be seen as a total approach to strategic business management and not merely a compilation of all the previous approaches purporting to manage different types of ICan approach that purports to manage the organizational wealth of the whole enterprise, 80 percent of which is now intangible. The fact that 80 percent of corporate wealth in America and other developed economies is intangible makes ICM not a mere method or collection of processes to manage one resource of the enterprise, but an approach for the man­agement of the entire enterprise.

Comprehending ICM as a coherent discipline with all this diversity may seem impossible. It would require the expertise of the multidisciplines involved: business, law, technology, accountancy, and industrial psychology. But bringing all these perspectives under a coherent model is not the main challenge confronting ICM. The challenge is to understand the interplay between them and bring them together in an effective way to enable an organization to realize, manage, and leverage its intellectual capital effectively.

The CICM approach integrates the three management approaches KM, IM, IAM/IPM while recognizing that each has unique objectives, processes, strategies, and tools. One of the functions of this book, and perhaps the most important one, is to present the CICM approach as an evolutionary stage of strategic business management for the knowledge economy. Comprehensive Intellectual Capital Management: Step by Step will demonstrate with practical examples that to create and extract value from organizational intellectual capital, and create and sustain competitive advantage, an organization needs to adopt ICM as its modus operandi, rather than implement separate programs limited to one or a few divisions.

Part One introduces ICM in a way that the business reader can understand. It explains the rela­tionship between IC and market value, business growth, stock price, and overall competitive performance. Use Chapter 1 to understand the challenges that face your business in the new economy, the competitive dynamics that your business is subject to, and the solutions that ICM can provide for capitalizing on your business innovative power. Real world examples are used to demonstrate the real value of IC and its relation to market capitalization. Chapter 2 defines what IC is and the models that emerged to explain how value is created from its management. This chapter will also cover the crucial issues relating to measurement of intellectual capital, and the systems that emerged for this purpose, while Chapter 3 will deal with the issue of IC reporting and future trends. Suggestions for a reporting model will also be presented. Part One will con­clude with an overview of the CICM model, and the framework it sets for managing IC under three stages of knowledge, innovation, and IP management.

Part Three takes the business reader into step by step application of practical techniques, processes, and strategies for managing intellectual capital using the CICM model. Chapters 11 through 13 will present a detailed account of the three stages of the CICM model, for managing IC under knowledge, innovation, and IP management stages. Each of these chapters commences with defining the management objectives that should be targeted for each of the stages, which in turn informs what returns to expect, and what indicators to monitor. But not every organization can implement the three stages of ICM to the fullest degree. For one thing, this will place considerable demand on resource allocation when maybe it is not the right time to introduce change. More importantly, this may not be what is required in view of the strategy of the business. Nonetheless, it is essential that management understand that the three stages reinforce each other and that implementation of a program or effecting certain changes under one of the stages will affect programs and changes under the other. Chapter 14 presents the variables that should be taken into consideration in implementing the CICM model, as well as suggestions on how to devise a phasedout plan that takes into account budgetary constraints and strategic objectives. Chapter 14 also presents a diagnostic tool, the Intellectual Capital Grid, that a business can use to assess its needs in terms of ICM initiatives, where it is, where it needs to be, and how to get there.

Because this book is written for the general reader, no more than the general knowledge of business management and of intellectual property is assumed. To be able to fully appreciate and later implement an ICM model, a deeper knowledge is needed. Therefore, the book includes a number of appendices: a mini MBA (Master of Business Administration) presenting basic business management concepts, and a mini MIP (Master of Intellectual Property) presenting requisite knowledge of intellectual property law.