Mapping intangible capital—Tools for optimizing the knowledge-era organization

Mapping Intangible Capital—Tools for Optimizing the Knowledge-Era Organization

Mary Adams

© 2010 Wiley Periodicals, Inc.Published online in Wiley Online Library (wileyonlinelibrary.com). DOI 10.1002/ert.20306

The shift from the industrial to the knowl-edge era will create an opportunity for

organizations to leverage their human capitalas never before. This is because people are at the center of intangible capital (IC)—theunique set of knowledge assets that each orga-nization uses to create value for its customers.But people and knowledge are invisible intoday’s management information and toolset.To get the most out of intangible capital, man-agers need to bring people into the equation,literally put them on a map that shows howvalue is created in their organization.

A NEW ERA

Today, success is no longer defined by what a company owns but, rather, what it knows.This shift was fueled by the rise of informa-tion technology that helps people store anduse knowledge more effectively. Every cornerof our workplaces has been computerized—from the supply chain to the factory floor,service offerings, and customer interaction.This automation has created incredibleopportunities for growth and innovation, butmost management teams are unprepared forthe challenge. This is because the basicinfrastructure of our economy—financial sys-tems, accounting, corporate structures, andmanagement tools—has yet to catch up withthe underlying economic changes. This

means that the average businessperson isnavigating the challenges of the knowledgeera using a toolset optimized for the indus-trial era.

Almost every business today has a set oftools to provide basic information about theorganization. It has a strategy to tell it whereit is headed. It has an organization (org) chartto tell it how its people are deployed to getwork done. And it has financial statements totell it what it owns and how the strategy isperforming. But there is a problem with thisinformation set. Today, the financial state-ments fail to account for 70–80 percent ofthe value of the average company that is heldin knowledge “intangibles.” The strategydoesn’t tell the organization how to innovate.And the organization chart does a poor job ofdescribing how work is really getting done.None of these tools reflects the central roleof intangibles to corporate performance andcompetitive position.

To know what needs to be done, to orga-nize work, and to measure results, a new setof tools is needed. This new managementtoolset must, above all else, make the 70–80percent held in knowledge intangibles visibleto those who use them—to bring them intomanagement thinking and information sys-tems, to empower employees and managersto leverage these intangibles to fuel growth,to improve performance, and to build an

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Employment Relations Today

environment where learning and innovationbecome the norm.

In making this shift, it is critical toempower both employees and managers. Inthe knowledge era, there is constant tensionand opportunity in both bottom-up and top-down knowledge flows. This dynamicchanges the role of the manager and holdsgreat promise for building a more engagedworkforce. That’s what happened in the com-pany described in the next section. Employ-ees were involved in a bottom-up analysisthat helped identify high-value improvementsto their organization, a very different dynamicfrom top-down initiatives created by managersalone. They were empowered by the process

and fully engaged in the changes that neededto be made.

ONE COMPANY’S STORY

This article uses a series of maps and visual-izations from a recent project around growthand innovation at a large national companyselling products used in home health care.This company had been able to deliver incre-mental growth, despite the challenging econ-omy. But company leaders knew there wasroom for dramatic growth in their market.And they knew that a big part of the problemwas head count in the field sales groupwhere their territory managers advocate fortheir product and services to referral sourcesinside hospitals. Every year they would try to

Mary AdamsEmployment Relations Today DOI 10.1002/ert

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get approval for additional sales reps fromtheir corporate parent. They would rewritethe request in a different way each time. Butthey weren’t satisfied with this approach.What was the optimal way to scale their busi-ness? Was head count the right lever? Thesales group has a complex organization. Thestaff has ten years of average tenure, so theyknow the company inside and out. But man-agement found it hard to get beyond the com-plexity and explain the challenge—and theopportunity—to their parent. They didn’tknow where to start.

There are a lot of management teams in alot of conference rooms around the worldtoday with the same dilemma. They want togrow, and they don’t know where to start.They have an intuitive understanding of theirbusiness but lack the right vocabulary andmodels to explain how things really work.This article suggests a place to start, a newskills set that can help move our thinking intothe twenty-first century, to adapt to the knowl-edge economy where the rules of growth andscaling have changed dramatically.

First Step: High-Level Inventory

To develop an understanding of intangiblecapital, the best place to start is a simpleinventory. The goal here is to identify andclassify the core knowledge resources of theorganization according to the three key cate-gories of intangible capital:

1. Human capital is a source of knowledgeand the catalyst for creation of newknowledge. Certain kinds of knowledge,experience, and competencies are (andalways will be) inside of people’s heads.

2. Relationship capital is a source of newknowledge as well as the means of

In the knowledge era, there is constant tensionand opportunity in both bottom-up and top-downknowledge flows. This dynamic changes the roleof the manager and holds great promise forbuilding a more engaged workforce.

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monetizing knowledge. Certain kinds ofshared knowledge are (and always will be)inside of your shared resources and rela-tionships. Brands are a subcategory ofrelationship capital.

3. Structural capital is the knowledge thatgets captured and leveraged into reusableforms that fuel growth and innovation.These include processes (many enabled byinformation technology), databases, train-ing materials, and intellectual property.This operational knowledge is highly scal-able.

When creating an IC inventory for a spe-cific organization, it pays to start with a high-level summary. In Exhibit 1, the basic inven-tory includes the competencies of the salesgroup (human capital), the systems andknowledge that facilitate employees’ work

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(structural capital), and the group’s key part-ners (relationship capital).

This perspective is useful for talking aboutcapability, strength, and scaling. These basicintangibles describe the resources that thisorganization (or any organization) uses to getits work done. And to get the work done, anorganization needs to have balanced strengthamong human, relationship, and structuralcapital. Great people with weak systems, forexample, are a recipe for trouble. Great peo-ple and systems paired with weak relation-ship capital are also a nonstarter. All threeelements are necessary. This dynamic makespeople in an organization more importantthan ever before. They are one of the threelegs of the stool in terms of knowledge capac-ity of an organization. An inventory-levelview is the first step in making this dynamicvisible.

Exhibit 1. An Inventory of the Three Categories of Intangible Capital


In the case of the sales group, this visual-ization was used to talk about the balanceamong the types of intangibles. The organiza-tion had strong people, but more staff wasneeded. They had strong relationships. Struc-tural capital was generally good, but therewere some clear opportunities. Once thesebasic pieces of the puzzle were identified, itwas helpful to create a different kind of visu-alization: one that shows how the intangiblesare put to work.

Second: High-Level Map of Intangibles at Work

The next step to understanding intangiblecapital is to build a map or visualization ofhow the pieces fit together. Whereas theinventory earlier was focused on competen-cies of human capital, Exhibit 2 provides avisualization built on job functions. This is a


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modern version of the organization (org)chart—with a number of significant differences.

❏ Traditional org charts map internal func-tions only, whereas this one maps bothexternal and internal functions.

❏ Traditional org charts map reporting rela-tionships only, whereas this one mapsworking relationships—who works withwhom.

❏ Traditional org charts are linear, limited toone connection up and one connectiondown, whereas this one maps all relevantconnections in any direction.

This perspective is helpful for talkingabout the ecosystem in which human andrelationship capital interact. In this case, thevisualization brought clarity to a number ofimportant findings. First, it was absolutely

Exhibit 2. Mapping How the Different Elements of Intangibles Interact

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clear that there were insufficient numbers ofstaff to meet the needs of the market. Themanagement team had previously understoodthis fact but was trying to understand it usinga traditional organization chart and a geographical map of where their staff waslocated. These internally focused analysesdidn’t help put the staffing in a market con-text. Addition of external functions to theanalysis also emphasized the indirect natureof the task of this sales group. Their task is toinfluence partners (programs, health-careorganizations, and referral sources) to influ-ence a patient to pick up the phone and orderthe company’s products. Although this wasnot news to the management team, creating a visualization of this indirect and nonlinearprocess helped create a foundation for follow-on analysis of the work of this group.Exhibit 3 adds four major tasks to the visu-alization in Exhibit 2:


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1. Developing program relationships,2. Developing health-care-organization

(HCO) relationships,3. Motivating a referral, and4. Closing the sale.

These simple visualizations helped theteam build an understanding of the need toscale both head count and structural capital.Using this visualization as a foundation, theteam won quick approval of a 10-percentincrease in staffing. The team also received a mandate to undertake a review of all thestructural capital of the group—in an effort toensure that both existing and new employeeshad the resources they needed to perform atthe highest level. At first, the project wasframed as a “structural-capital gap analysis.”The project title was later shifted to a resultsperspective, as an “optimization” of the salesgroup.

MotivatingReferral

ClosingSale

DevelopingProgram

Relationships

Developing HCORelationships

Exhibit 3. High-Level Map of Work Processes


Structural capital opportunities hold spe-cial promise because they are highly scalable.Increases to human capital require the hiringof new people. Increases to relationship capi-tal require the winning of new partners. Butonce an improvement is made to structuralcapital, it can be shared across an entire orga-nization with relatively low marginal cost,making everyone in the organization smarterand creating a new baseline for the next stageof learning. Examples of this are improve-ments to the software that people use to dotheir jobs, improvements to core processesthat save time or increase quality, or im-provements to the quality of information that people can access to make decisions orcomplete tasks.

Third: Detailed Mapping of Work Processes

The power of structural capital to leveragehuman capital is a compelling proposition.But how could the team create a review ofthe entire structural capital portfolio of alarge division? They use five core softwareplatforms to do their work. They participatein another half dozen that are shared acrossthe company. They have thousands of inter-nal documents, dozens of training programs,and as many as 15 variations of their pro-gram offerings. A traditional gap analysiswould inventory, document, and analyze eachof these elements of structural capital. Such aprocess would take months (maybe years!)and produce a huge document that fewwould have time to read, let alone imple-ment. And an analysis of existing structuralcapital would not necessarily identify areaswhere new structural capital could/should becreated. There had to be a better way.

The team decided that a simpler and morepowerful starting perspective would be to


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focus on the work that is done in the group,and evaluate where there were opportunitiesto improve it. For this, the team used anothermapping technique called value networkanalysis (VNA), which is based on the ValueNet Works™ method developed by VernaAllee.

Exhibit 4 illustrates the basic concept ofVNA mapping. The starting point is to iden-tify the “roles” in the network. A role des-cribes the specific function that a person isplaying, not the individual’s title from an orgchart; a role would include, for example,advisor, buyer, designer, marketer, mentor,partner, and problem solver. It is common fora person to serve in more than one role.

Once all the key roles are identified, theybecome nodes in a network. The next task isto catalog and map all the different “exchanges”between roles. These are all the tasks thatneed to occur to get a job done. An effort ismade to identify both tangible and intangibleexchanges. Delivery of a product, document,or money is a tangible exchange. An intangi-ble exchange is something like the sharing ofknowledge, an introduction to someone else,or personal support. Generally, the tangibleexchanges are more formal. The intangibleexchanges, although less structured, are criti-cal in creating trust and facilitating bettercommunication in an organization.

Tangibleexchange

TangibleexchangeRole

Role

Intangibleexchange

Intangibleexchange

Exhibit 4. Template for Mapping Value Networks

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This project included a somewhat newapplication of the VNA methodology in thatit specifically focused primarily on structuralcapital. The thesis of this approach is thatvirtually every transaction has (or shouldhave) structural capital associated with it.Tangible exchanges are supported with clearstructural-capital elements, such as documen-tation, process steps, and/or systems. Intangi-ble exchanges, on the other hand, should besupported with training and knowledgesources.

The maps were created through a series ofexercises. Initial maps were created in a day-long exercise involving 20 people from bothinside and outside the sales group. Individu-als outside of the sales group represented themarketing, finance, and information technol-ogy (IT) groups. This diverse group brought abroad view to the analysis. It also actually ledto an immediate resolution of some of theissues that surfaced during the discussions. In one case, a member of the marketing groupsaid, “We have a program we developed lastyear to address this gap and never launched;we’ll get it back on the calendar.” In anothercase, the IT department suggested a quick fixto enable field-service people to receive infor-mation via e-mail to their telephones thatthey previously received via fax (and onlysaw at the end of the day when they returnedto their offices). Participants were empowered—they would offer comments such as, “We have the answer to that; I’ll make sure it getsfixed right away.”

Follow-up, in-depth meetings were held torefine each of the four individual maps. Theanalysis focused on what worked well, whatwas missing, and how the network could beimproved. At the end of each session, thegroup prioritized the gaps between currentperformance and what they considered ideal.


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This was the foundation of the recommenda-tions from the exercise. The findings werereviewed by all involved as well as with man-agement to create a consensus on key initia-tives.

Exhibit 5 is a sample of one of the VNAmaps developed by the teams. This map is agood example of the power of the methodol-ogy and the visualization. The large numberof transactions dominating the top center ofthe map are between the evaluator and theseller. The evaluator role represents eitherthe subscriber or a family member who istaking responsibility for the purchase. Afterthe initial inquiry (via phone, fax, or e-mail),all the rest of the transactions in thisexchange occur in a single phone call. This

high number of steps was itself something ofa revelation for many in the project (it is hardto get everything right and close the sale thisway). And this is complicated by the fact thatthe data in the call-support system is veryslow to load, making the call even longer, andoften frustrating the customer. Further, thelarge number of intangible exchanges meantthat each call was very different. Personalconnection was critical to the success of thecall.

Another set of issues is visible in the lowercenter of the map, where the exchangesbetween the installer and the subscriberbrought home to the team that many sub-scribers are still uncertain even after theyhave placed an order. This made it clear thatinstallers needed much more than technicaltraining—they also needed to be trained in

The intangible exchanges, although less struc-tured, are critical in creating trust and facilitat-ing better communication in an organization.


communication and selling skills to helpresell the customer when needed.

Results

The sales group project led to a number offundamental changes in the organization thatincluded:

❏ Approval of a 10-percent increase in salesstaff as a first step to scaling the mostunderstaffed territories;

❏ Division of the territory manager role intoprogram management and referral market-ing roles;

❏ Improvement of the telephone-sales clos-ing process (as described above related toExhibit 5);


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❏ Development and dissemination of com-petitive information via training andonline resources (as the market leader,this company had never gathered thisinformation, but the field personnelemphasized their need to sell against thecompetition);

❏ Creation of business cases and data tosupport the strategic business-to-businesssale used in programs, health-care organizations, and even in referral marketing;

❏ Addition of sales training for installers;and

❏ Construction of a knowledge-sharing platform for all sales personnel to share best practices (the company already had this kind of system for

Referrer

Evaluator

Seller

InstallerSubscriber

Distributor

Scheduler

Trainer

Brochure

Referral

Inquiry

Opening questions

Answers

Needs assessment

AnswersConcerns

Comfort

Solution/price

Listening,

Order

Appointment

InstallationQuestions/ concerns

Declines service

Training

Drop ship

Orders

Order

OrderUpfront 2-wk

training

Web-basedtraining

Stock

Marketingmaterials

Product demo

Order marketing materialsGet pricing

Orders

Information on closed sale

Upfront &web-based

Order

Overcoming objections

Purchasing

Empathy

Objections

Exhibit 5. Sample VNA Map Showing Detailed Exchanges Between Roles

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sharing among its program partners, and employees saw the value for theirown work).

The content of these initiatives wasimportant, as it represented the highest-valuefixes to the organization to improve per-formance. But these fixes were not beingimposed on employees, but rather respond-ing to the needs of employees. This repre-sents a very different dynamic from the typi-cal change-management effort, whereemployees are convinced and incented tochange according to the views of their man-agers. Here, the organization was reacting tothe needs of its employees. This is an exam-ple of the shift in knowledge-era leadershipwhere the goal of management is less to tellemployees what to do and more about pro-viding resources and an ecosystem whereemployees can create the best solutions tothe problems at hand.


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CONCLUSION

The rise of the knowledge era put human cap-ital more firmly at the center of corporatevalue creation than ever before. But human,structural, and relationship capital are allinvisible in today’s management informationsystems. Modern managers have no choicebut to create their own presentations to inven-tory and map the critical components of theirorganization’s intangible capital. Visualizationtechniques, especially mapping, are powerfulways of presenting intangibles data. Thesevisualizations can and should be created withboth a top-down and a bottom-up perspective.They can be used for traditional managementfunctions like planning and budgeting. Butthey can also be used as a way of engagingemployees in creating change in the organiza-tion. Involving employees in creating and ana-lyzing these visualizations engages them verydirectly in optimizing their own work and thework of the organization as a whole.

Mary Adams is the coauthor of Intangible Capital: Putting Knowledge to Work in the21st Century Organization (Greenwood Publishing Group, 2010). She is a cofounder of I-Capital Advisors and Trek Consulting, and the author of the Smarter Companies blog.In 2006, Adams created the IC Knowledge Center, a site that today is home to a globalcommunity of intellectual-capital thought leaders. Prior to starting her consulting busi-ness, she had a 15-year career as a high-risk lender at Citicorp and Sanwa BusinessCredit. She may be contacted at [email protected].

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Mapping intangible capital—Tools for optimizing the knowledge-era organization