Excerpts from Thomas Stewart's Book

Intellectual Capital: The New Wealth of Organizations

by Dave Hollander
Tuesday, January 04, 2000

I highlighted these quotes, passages and paraphrases while reading Thomas Stewart's book, Intellectual Capital:The New Wealth of Organizations (ISBN: 0385482280). I consider this book a must read, not only for those in information/knowledge management but for anyone who finds value in good books discussing business trends.

These quotes, passages and paraphrases should not substitute for reading the book--there is a lot of expertise captured in the book. The focus of this work is to capture some of that expertise and find ways to put to work for HP, not to explain it. If you must, look over this work and maybe it will convince you that the questions left unanswered here will make the book worth the read.

From the Publisher :"Dazzling in its ability to make conceptual sense of the economic revolution we are living through, Intellectual Capital cuts through the vague rhetoric of "paradigm shifts" to show how the Information Age economy really works--and how to make it work for you and your business."

Some of these quotes prompted me to write a short essay. These are collected in Just-In-Time Information Management and other KM Essays. In these paper are two lists, one order as they appear in the book and the other collected around topics.

The Nature of Intellectual Capital

  1. in 1991. In that year, spending for production technology was $107 billion and information technology spending was $112. Call that Year One of the Information Age.
  2. Knowledge is what economists call a "public good". That's jargon meaning that knowledge can be used without being consumed. p 170
  3. [Intellectual Capital is] materialization of the immaterial - p 29
  4. intellectual capital takes just two forms (p 71, 132).
  5. three places to look for intellectual capital:

Characteristics of Knowledge Organizations

  1. Imagine a factory inside whose walls is everything necessary to make a product--machines, component parts, other raw materials, safety glasses and hard hats, testing equipment, forklifts, the works. But suppose this stuff is heaped and scattered about the building without rhyme or reason. Parts are never counted or sorted; every time a worker has to bolt the gearbox onto the product, he must leave his post and search for ten minutes before he finds the box of bolts and three minutes more before he finds the right one; bins overflow with random jumbles of spare parts and components; the testing equipment is a city block from where the finished product off the line-if "line" is the word, for the plat's arrangement seems more like a plate of linguine than a line. Half-finished examples of discontinued products lie all over the building, and navigating a forklift through the mess is like driving in Manhattan on the last shopping day before Christmas. Trash is never collected. Instead, every few months a bulldozed drives through the plant, pushing out the door whatever lies in its path.   p109
  2. Knowledge companies don't want [physical] assets. - p36
  3. ...not only are the key assets of a knowledge company intangible, it's not clear who owns them or is responsible for caring for them. - p 32
  4. A 10 percent increase in workforce education level led to an 8.6 percent gain in total factor productivity. By comparison, a 10 percent rise in capital stock increased productivity just 3.4 percent. - p85
  5. Why outsource now? Knowledge Networks reduce the transaction costs which make market-like structure more efficient. p 194
  6. Excerpts from Ten Principles for Managing Intellectual Capital - p 163
  7. An Adhocracy needs to find a way to restore the perspective delayering might destroy - p 187
  8. In companies whose wealth is intellectual capital, networks, rather than hierarchies, are the right organizational design. p 182
    1. The PC destroyed the hierarchy.
  9. In a networked company, the role of management changes from POEM (Plan, Organize, Execute, Measure)  to DNA (Define, Nurture, Allocate)  - p 191
  10. Position power gives way to project power; "no need to oversee steady-state structures, computers will do that." p 204

Working with Intellectual Capital

Information Catagorization

  1. The idea that knowledge can be slotted into a data-to-wisdom hierarchy is bogus, for the simple reason that one man's knowledge is another man's data. - p 69 
  2. organization capital is, first and foremost, capital. Like all capital, it can be looked at in terms of stocks and flows. p 111
  3. The classical hierarchial org chart, which is seldom used for organizations anymore, is still used as the model in information and knowledge management! p 123

The Need for IC Managers

  1. Unless it's managed, it'll be as chaotic as a school yard at recess. [knowledge management network] p 125

Goals of IC Management

  1. ...two purposes that structural capital should observe
  2. "Trolling for Brain Power" - p 185
  3. Recognizing the danger of over investing in knowledge, HP is actually working to increase areas of deliberate ignorance.  ... zones of deliberate ignorance--"things you're willing to let go of." p 134
  4. Middlemen for information
  5. How can project managers call for reinforcement?

Managing Human Capital

  1. [fostering human capital] If the can't manage communities of practice, managers can nevertheless help them (pps 98-100):

Managing Customer Capital

  1. To understand customer capital...you must look at the intangible value chain....to ask three new questions of the value chain (p 152) :
  2. customer capital is structural capital shared with a customer ...see the diagram on p 158

Economics of Information

(pps 170-174)

  1. knowledge exists independent of space
  2. frequently, knowledge increases in value because it is abundant, not scarce.
  3. Most knowledge-intensive goods and services have a cost structure that is dramatically different from the cost structure of congealed material.
  4. there is no meaningful economic correlation between knowledge input and knowledge output.
  5. knowledge-intensive businesses violate the law of diminishing returns

In Order that they appear

  1. materialization of the immaterial - p 29
  2. not only are the key assets of a knowledge company intangible, it's not clear who owns them or is responsible for caring for them. - p 32
  3. Knowledge companies don't want assets. - p36
  4. in 1991. In that year, spending for production technology was $107 billion and information technology spending was $112. Call that Year One of the Information Age.
  5. The idea that knowledge can be slotted into a data-to-wisdom hierarchy is bogus, for the simple reason that one man's knowledge is another man's data. - p 69  Forget about arbitrary distinctions among data, information, knowledge, wisdom; that's a tar baby. - p71
  6. intellectual capital takes just two forms.
  7. three places to look for intellectual capital:
    1. Human capital - the capabilities of the individuals required to provide solutions to customers
    2. structural capital - the organizational capabilities of the organization to meet market requirements. ... packages human capital and permits it to be used again.
    3. Customer capital is the value of an organization's relationships with the people it does business with. ... the depth (penetration), width (coverage) and attachment (loyalty) ..
  8. A 10 percent increase in workforce education level led to an 8.6 percent gain in total factor productivity. By comparison, a 10 percent rise in capital stock increased productivity just 3.4 percent. - p85
  9. [fostering human capital] If the can't manage communities of practice, managers can nevertheless help them (pps 98-100):
    1. Recognize them and their importance
    2. Give them the resources they need
    3. Fertilize the soil, but stay away from actual husbandry
  10. Imagine a factory inside whose walls is everything necessary to make a product--machines, component parts, other raw materials, safety glasses and hard hats, testing equipment, forklifts, the works. But suppose this stuff is heaped and scattered about the building without rhyme or reason. Parts are never counted or sorted; every time a worker has to bolt the gearbox onto the product, he must leave his post and search for ten minutes before he finds the box of bolts and three minutes more before he finds the right one; bins overflow with random jumbles of spare parts and components; the testing equipment is a city block from where the finished product off the line-if "line" is the word, for the plat's arrangement seems more like a plate of linguine than a line. Half-finished examples of discontinued products lie all over the building, and navigating a forklift through the mess is like driving in Manhattan on the last shopping day before Christmas. Trash is never collected. Instead, every few months a bulldozed drives through the plant, pushing out the door whatever lies in its path.   p109
  11. organization capital is, first and foremost, capital. Like all capital, it can be looked at in terms of stocks and flows. p 111
  12. The classical hierarchical org chart, which is seldom used for organizations anymore, is still used as the model in information and knowledge management! p 123
  13. Unless it's managed, it'll be as chaotic as a school yard at recess. [knowledge management network] p 125
  14. ...two purposes that structural capital should observe
    1. codify bodies of knowledge that can be transferred, to preserve the recipes that might otherwise be lost
    2. to connect people to data, experts, and expertise--including bodies of knowledge--on a just-in-time basis. p 132
  15. Recognizing the danger of over investing in knowledge, HP is actually working to increase areas of deliberate ignorance.  ... zones of deliberate ignorance--"things you're willing to let go of." p 134
  16. To understand customer capital...you must look at the intangible value chain....to ask three new questions of the value chain (p 152) :
    1. What information drives the business?
    2. Who has it?
    3. To whom is it worth most?
  17. Structural capital, shared with a customer is customer capital...see the diagram on p 158
  18. Excerpts from Ten Principles for Managing Intellectual Capital - p 163
    1. Companies don't own human and customer capital; companies share the ownership of these assets
    2. Structural capital is the intangible asset companies own outright; it's therefore what managers can most easily control. Paradoxically, however, it's what customer--who are where money comes from--care least about. ...those structures are best that obtrude least.
    3. It used to be that information supported the "real business; now it the real business.
    4. If a cynic in you shop wonders if you're more loyal to the customer than to the company, you're on the right track.
  19. Knowledge is what economists call a "public good". That's jargon meaning that knowledge can be used without being consumed. p 170
  20. economics of information (pps 170-174):

    1. knowledge exists independent of space

      1. the buyer cannot judge whether it's worth paying for until he has it
      2. the fact that you have sold information to me does not prevent you from selling the same item to someone else
      3. some forms of it are extremely sensitive to time
    2. frequently, knowledge increases in value because it is abundant, not scarce.
      1. corollary 1) Amid information overload...the value added is the information subtracted.
    3. Most knowledge-intensive goods and services have a cost structure that is dramatically different from the cost structure of congealed material.
      1. Costs are heavily front-loaded
      2. the more intangible a product--the more nearly it is pure knowledge--the greater the discrepancy between sund an marginal costs
    4. there is no meaningful economic correlation between knowledge input and knowledge output.
      1. The value of intellectual capital isn't necessarily related to cost of acquiring it
    5. knowledge-intensive businesses violate the law of diminishing returns
      1. someone hoping to ride the curve of increasing returns needs the temperament of a gambler but the deep pockets of a big company--not a combination frequently found in corporate cultures.
  21. In companies whose wealth is intellectual capital, networks, rather than hierarchies, are the right organizational design. p 182
    1. The PC destroyed the hierarchy.
  22. "Trolling for Brain Power" - p 185
  23. An Adhocracy needs to find a way to restore the perspective delayering might destroy - p 187
  24. In a networked company, the role of management changes from POEM (Plan, Organize, Execute, Measure)  to DNA (Define, Nurture, Allocate)  - p 191
  25. Why outsource now? Networks reduce the transaction costs which make market-like structure more efficient. p 194
  26. Middlemen for information
  27. Position power gives way to project power; "no need to oversee steady-state structures, computers will do that." p 204