Assessing staff and moving HR from managing people to managing intellectual capital.
Professor W B Lee, Director of the Knowledge Management Research Centre at Hong Kong Polytechnic University has spoken extensively on how HR’s role is moving away from managing people and towards managing ‘knowledge workers’ and intellectual capital.
Knowledge-based economy
In the traditional sense of the word, ‘capital’ is a reference to physical and tangible assets, which include, for example, inventory and cash on-hand. In the information age, we have been heading more and more towards a knowledge-based economy where intangible, intellectual capital accounts for the majority of overall corporate value. If the Pareto principle (i.e. 80/20 rule) is anything to go by, then it stands to reason that it is much more important that this intellectual capital is not only managed, but managed well.
While the term ‘intellectual capital’ is now in vogue, the concept is not new. The term ‘knowledge worker’ has been around since 1959, when Peter Drucker coined it to describe one who works primarily with information or one who develops and uses knowledge in the workplace, as opposed to physical power or work.
Brain vs brawn
Profiling a knowledge worker is not a simple matter of identifying the location of work. Generalising, for example, that builders working outside on building sites are in ‘brawn’ roles and administrative staff are in ‘brains’ roles is a huge misrepresentation of the skill sets and knowledge that workers in both arenas may possess. Who is to say, for example, that a person in a ‘brawn’ role doesn’t also have specialised knowledge, and vice versa. According to Professor Lee, there are several characteristics displayed by knowledge workers who:
- primarily identify themselves with their profession rather than their workplace
- are highly mobile and are quick to change jobs
- are driven primarily by the pride and sense of accomplishment
- have a strong desire for persistent learning and respond much better to being pulled than being pushed
- constantly look for organisations that provide learning opportunities, informal networking with peers inside and outside their own company.
Knowledge worker roles
Quoting Nigel Bristow of Targeted Learning, Professor Lee states that there are five distinct, but interdependent roles that are typically performed by knowledge workers:
Role 1—Acquiring: learn how to access and use the existing knowledge of the organisation
Role 2—Applying: use existing knowledge to complete their tasks
Role 3—Creating: create new products, processes and tools, etc.
Role 4—Sharing: help others to acquire and use knowledge to solve problems
Role 5—Leveraging: create the cultural and strategic context to transfer organisational knowledge in people’s heads into expert systems, structures, processes, policies and norms
Knowledge audits
Auditors have been around for a long time to make sure we are doing such things as reporting our tax and insurance claims legitimately. The general populace has therefore loved auditors about as much as lawyers. And now there are even knowledge audits.
You can relax though, because the purpose of the knowledge audit is not to check what you know against what you say you know on your CV. The primary objective of the knowledge audit is to guide companies towards an informed view of knowledge and intellectual capital management. Within any organisation, the knowledge audit is designed to determine:
- What knowledge is needed
- Where that knowledge is available and where it is missing
- Who needs the knowledge
- How the knowledge will be applied
There is no reason that an inventory of your organisation’s intellectual assets cannot be managed in much the same way that your warehouse stock is. Without knowing what stock you need, as well as what you do and don’t have on-hand, you will not know what stock you need to purchase in order for the company reach its production (or strategic) goals more efficiently.
For HR managers, this is a crucial aspect of the talent management process. Pre-requisite to being able to put the right people in the right roles, within your organisation, is knowing your organisation’s strategic objectives. Knowing and understanding those objectives, allows HR managers to strategically place the right human assets in positions that will drive the company forward towards its objectives and beyond. Of course, HR managers also need to make sure that there is sufficient incentive (both extrinsic and intrinsic) for such key talent to stay onboard in order to ensure this happens. This is a much broader perspective of the importance of the HR manager’s role beyond “paper-pushing.”
Assets or liabilities?
Professor Lee states that many organisations treat people as their biggest expense. This is certainly valid if you were to take a look at the company’s finances: when you add up all the salaries, benefits and training expenses, it would come to quite a lot of money. However, many organisations also claim that their people are their greatest assets. The inherent problem with managing intellectual capital is that unlike warehouse stock, the company does not own these assets. As a result, their Intellectual Capital (IC) balance sheet is, more often than not, in the red.
IC components & attributes
Intellectual Capital is actually made up three subsets of capital.
- Human Capital refers to the knowledge residing in the heads of employees that is relevant to the purpose of the organisation.
- Relational Capital refers to the value of a company’s ongoing relationships with the people or organisations to which it sells.
- Structural Capital refers to knowledge assets that “don’t go home at night.”
The European Commission MERITUM Project (2002) provides an extensive list of attributes that make up each aspect of Intellectual Capital.
Firstly, Human Capital includes attributes of innovation capacity, creativity, know-how, previous experience, teamwork capacity, employee flexibility, tolerance for ambiguity, motivation, satisfaction, learning capacity, loyalty, formal training and education.
Secondly, example manifestations of Relational Capital include brands, customer loyalty, company names, backlog orders and distribution channels, as well as licensing and franchising agreements.
Thirdly, Structural Capital is the result of effective intellectual capital management because the capital stays within the organisation, even if key staff leave. Examples of Structural Capital include patents, copyrights, trade secrets, trademarks, corporate culture and management processes as well as information systems.
Drawing up an IC balance sheet
Traditional statements of a company’s financial position in terms of assets and liabilities would normally read something like:
Owner’s equity = total assets - total liabilities
Such financial statements, however, do not show the loss of IC and the subsequent impact on the company should key talent leave. In the case of an IC balance sheet, the owner’s equity is the intellectual capital that is retained by the company.
An IC balance sheet might thus read:
IC = Intellectual Assets - Intellectual Liabilities
Raising the value of your organisation’s intellectual capital then lies in reducing intellectual liabilities and raising intellectual assets. To do that, HR managers need to be able to extract essential information from the heads of key personnel and convert it into a tangible asset that will continue to benefit the organisation even after staff have moved on.
IC in the red
So what is the cost of poorly managed IC? According to research conducted by KPMG, after losing key employees:
43 percent of organisations experienced damage to primary customer relationships
50 percent of organisations had lost knowledge of best practice information10 percent had lost significant income
(Warren, 1999)
Back to basics
HR managers can contribute to increasing the value of their organisation’s IC by going back to, and constantly reviewing the basic elements of good human resource management.
What this means in practical terms is setting the wheels in motion for the conversion of implicit knowledge to a more explicit form. Extracting information out of people’s heads and into the form of documents, processes and databases for example. Professor Lee states that this is like, “Decanting the human capital into the structural capital of the organisation.”
HR managers should also encourage more and better quality human interaction such that tacit knowledge flow is enhanced. Such knowledge then becomes diffused around the organisation and not stuck in the heads of a few.
Paul Arkwright
Publisher
