09 June 2005

Intellectual Capital Risk...

What is the economic value of the Intellectual Capital(IC) in your organization? Where can you find your most valuable IC assets? Are they in the vault? Are they in the database? Or are they sitting at the computer at home or in the office next door? How do you know what assets are the most precious to the continuity of your business?

These questions and more are at the heart of every "Shamrock" organization. A three-leaf concept originally coined by the author Charles Handy in his 1989 book, The Age of Unreason.

One leaf of the shamrock represents the core. These are the founders and thought leaders of the organization along with the most qualified professionals or technicians. The core is a flat hierarchy compensated purely on the results of the entire entity.

The second leaf is known as the contractual fringe. This is both individuals and organizations who may have their own shamrocks. These are paid for results, not for time. In fees, not wages. This leaf provides the core with intellectual assets that are essential to the organization yet are independent or even former members of the core.

The third leaf of the shamrock is known as the flexible labor force. This is the flexible labor force that the core utilizes in a just-in-time talent or labor basis. Their specialized skills are tied to the intellectual assets these individuals posess to be efficient and effective for a set time period. They are treated by the core as a valuable component but realize that they will never have the commitment or the ambition of the core. They get fair pay for their contract labor.

What is Intellectual Capital? The "Shamrock" organization known as Areopa has a great way of explaining this question.

With our economy changing from a production-oriented economy towards a knowledge- oriented economy, your intangible assets are becoming more and more important. To make better products, to deliver better services or to perform better as a company in general we need to put in more knowledge and know-how. In that perspective we could say that knowledge has become the replacement of labor and financial capital.

To make your company work in the best possible way, you will not only need the machines, computers, production facilities, ...... but you will also need the drivers that makes your company function well. These drivers are your people with their know-how and experience, your internal processes to guide the business flow but also the interaction with your alliances/partners and your customers.

Without these drivers, your company wouldn't function at all and therefore they are of "Capital" importance. This is your "Intellectual Capital". The amount of Intellectual Capital will determine how good or bad you will be able to perform. It is the difference between success and failure because no matter how good the product or idea, without enough Intellectual Capital, no outstanding result can be expected.

Now the question is, how do you measure your Intellectual Capital? Without a way to measure it, how are you going to know what IC assets need to be managed and protected for the longevity and continuity of the business? Where are they located? Which are most valuable? Areopa also has the solution for measuring your IC assets.

People risk is one of the four categories of Operational Risk. Intellectual Capital assets are at the center of this and needs to be measured in order to be managed. Only then can you really gain the accurate insight on your IC risk.

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