Intangible Capital and Culture



IP and IC — the same thing or not?

Posted by Michael Oleksak on July 8, 2010 · Leave a Comment

Intellectual property (IP) is a term that is usually used to refer to specific types of structural capital that enjoy special legal status. These include patents, trademarks, copyrights, and trade secrets. Each of these categories has a specific body of law associated with it. Patents have to be approved by a national authority. Other categories do not require registration but are still protected under the law.

Legal protection can create a significant competitive advantage, depending on the circumstances. This legal definition and protection can also create opportunities for licensing IP rights outside the corporation. This strategy is getting a lot more attention today from organizations, consultants and software companies.

However, legal protection processes can be expensive and legal protection in itself is not a guarantee of competitive advantage. So, while you want to consult a good attorney to get the intricacies of the law correct, you should also try to also seek the advice of someone that has a good grasp of the strategic role of IP. You want to make sure that you file for protection when it makes sense. This decision involves a cost-benefit analysis. Some of the factors to consider include the cost of filing, the risk of disclosing your invention (disclosure is the only way to identify the idea that your want to protect), the competitive benefit of having a protected idea and the monetary benefit of being able to enforce and/or license your rights to other. Once you win a right, there are the practical and logistical challenges of managing the rights you obtain.

But these special legal systems are not the only way to “protect” your intangible capital. Our friend, Jackie Hutter (she calls herself a “recovering patent attorney”), pointed out to us that contracts are actually one of the most important ways of protecting your intangible capital. Good management of contractual relationships can have a big influence in customer and partner relationships (relationship capital) as well as key employee relationships (human capital) and acquired knowledge (structural capital).

One of the main ways that intangible capital gets protected is through its association with a strong business model. This goes for IP as much as for other kinds of intangibles.

In fact, the power of each of the components of your intangible capital is increased when they are combined with other knowledge components. Intangibles are a great example of the saying that “the value of the whole is greater than the sum of the parts.”

While someone could steal or imitate specific aspects of your business, it is hard to duplicate the whole system. This is a major way that most companies attain and retain competitive advantage—and protect their IP. This is important to keep in mind because many in the IP community will try to tell you that the only intangibles of any value are IP assets. We strongly disagree, which is why we have taken so much time to explain all the elements of intangible capital.

We actually created a pretty big controversy when we drafted this content for our book. When we started out, we intended to define all structural knowledge as intellectual property. When we consulted colleagues in the business and legal communities on the draft, we got some strong support and some equally strong pushback. The conversation spilled over to Twitter and Mary’s blog which had a record number of comments on a post called, “What’s the right definition of intellectual property?” The message that we wanted to communicate is that all intangibles are important and legal protection is just one of the strategies to protect your intangibles. However, it became clear to us that insistence on this definition was going to distract a lot of people from the core messages of this book. So we backed down.

So our advice is to leave the term intellectual property to the lawyers. But do not leave the protection of you intangible capital to just a legal strategy. Come to understand and protect your intangible capital as a system. Remember the lesson of knowledge economics. The highest value knowledge is knowledge that has been operationalized, put to work. The way that this usually occurs is actually through the creation of processes.

 

 

Intangible Capital and Culture

Posted by Michael Oleksak on July 1, 2010 · Leave a Comment

Culture is the least tangible of the structural capital assets. It can be hard to define but everyone knows it is there. Culture can be a productive or a destructive force within an organization. In general, a culture is what it is—and can be especially hard to change. As a starting point, it is important to be able to describe the basic features of a culture as a first step to self-knowledge.

In the IC processes that we use to map out the intangibles of organizations, culture characteristics are captured although they do not feed into the overall rating of the intangibles. The logic is that there is no one right culture but that understanding the predominant culture is critical to the success of all other management efforts. That’s pretty much the way we view it, although we know that there are people that specialize in trying to change culture. And we know from experience that a bad fit between management efforts and existing culture can be a recipe for failure.

We recently had an experience with a very numbers-based organization. Their corporate culture demands precise calculations of everything. We had been hired to help them scale their organization. As a way of setting the stage for the project, we put up a drawing that showed the huge gap between the market coverage of their existing staff and the potential market—on the order of 50:1. Yet when they saw this graphic, the management team ignored this amazing disparity between their existing and potential markets. Instead, they immediately started arguing about the accuracy of the numbers behind the ratio (that would, by the way, have changed the 50:1 ratio only slightly). From that experience, we learned to vet every number so that this kind of discussion wouldn’t derail our future conversations—although we have never let up in trying to help the team see the forest for the trees.

A good place to start in understanding your own culture is to use the following basic dimensions of culture including:

The extent to which the business culture is homogeneous or heterogeneous

The extent to which there are counteracting subcultures

The extent to which it is difficult to adapt to the culture

The extent to which the vision, mission and goals of the organization is communicated and understood throughout the organization

The extent to which the employees consider the working environment open

The extent to which employees have a sense of pride in their workplace

When you are ready to dig deeper, you will want to provoke a discussion among staff members and management. The focus should be on the values and behaviors that the culture encourages. Self-understanding is the first step in understanding culture.

 


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