A Knowledge Factory: A 21st Century Approach to Valuing the Intangible.

If you are running a company, Intangible Capital (IC) is a must read. This newly published book (2010) by Mary Adams and Michael Oleksak addresses the knowledge economy and its shortcomings in how we value corporations today. It is a provocative book, but an excellent read reflecting a deep understanding of how businesses work and how the intangible is becoming more important than the tangible. How do we account for that?

According to IC, only 30% of corporate assets are tangible, what about the rest? Knowledge assets are simply not measured, leaving 70% on the table. Today we have no good approach in how to account for the changes, not short term nor long term and certainly not in terms of inclusion in Financial Reporting. The book divides the knowledge intangibles into three classes of assets: human, relationship and structural capital and every chapter provides a set of tools.

Working with early stage companies, I often found push back from CEOs not wanting structure for their businesses, as it was viewed as a hindrance to innovation and entrepreneurial thinking. Intrigued by this fact, I wrote an article From Dissonance to Harmony to emphasize the importance of striking a balance between no structure and a hierarchical structure within the innovative community. I agree with the book that today’s business must have fluidity and flexibility and be an engine for ongoing learning, to allow for new thinking and better ways of problem solving from all employees with the ultimate goal to bring best value. Since the Google phenomena and vast technology advances, we have moved further into the knowledge economy. The authors were right on in suggesting leading as a conductor (horizontal) rather than the more traditional as the commander (vertical). I love that vision.

Another intangible asset is collective knowledge, a topic near and dear to me and how I believe Next Stage Solutions (NNS) is evolving. IC points out that markets coupled with technology today move so fast, that no one person can have all the information. This is certainly true in financial services where rules and regulations are changing almost daily. Within NSS, we work as a team of senior level financial experts exchanging ideas and solutions empowering each member to greater knowledge on behalf of our clients. The book explains how shared knowledge multiplies and emphasizes the necessity for value creation.

It continues to describe how it is imperative that a business today examines what its core competency is and looks at outsourcing all other aspects of a business. This leads in their opinion to the relevance of strong external partnerships or ‘relationship capital’ where what is not core to you is core to your partner, collectively creating a powerful engine, what the authors call a Knowledge Factory, displayed creatively with Legos in the book. The importance of networks and technology are significant facets of doing business.

All in all, I loved this book because it describes so well in how to think about a 21st century business. It validates NSS’ approach in many aspects, but more importantly for me, it gives me tools and metrics in the continued development of our knowledge and innovation strategy. The Knowledge Factory demands that we look at our business holistically and all involved must be engaged. Only then does the collective knowledge fuel our economic engine.

Make sure to get a copy of Intangible Capital today. The flexible business model is here to stay. It includes a mapping of the networks, multiplicity of goals and benefits with bottom up thinking. Congratulations to Mary and Michael with the publication of this innovative and pioneering book, helping businesses look at intangibles in a better way for doing business today and the future. Let’s continue the discussion in how to account for intangibles in business valuations and in our financial reporting.

Title: Intangible Capital, 2010
Authors: Mary Adams and Michael Oleksak
Publisher: Praeger, Santa Barbara, CA
ISBN: 978-0-313-38074-7

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