Thomas A. Stewart started researching the concept of intellectual capital in 1991, beginning with a series of groundbreaking articles for Fortune magazine, where he is a columnist and editorial board member. He has since published a bestselling book, Intellectual Capital: The New Wealth of Organizations (Doubleday/Currency, 1997).
Stewart defines intellectual capital as “intellectual materialknowledge, information, intellectual property, experiencethat can be put to use to create wealth.” Stewart discusses here his first contact with the concept, his book, what sets knowledge workers apart from the pack and what skills they will need to thrive.
QD: In your book’s foreword, you write that you first heard the term “intellectual capital” from Ralph Sayer of Johnsonville Foods. How long has the concept been around, and when did you first realize the importance of intellectual capital?
Stewart: You can argue that the concept has been around forever. There are a couple of mentions of the phrase in the 1950s. John Kenneth Galbraith used it in 1956, and I saw it in The Accounting Journal again in 1956. But it’s not explored, expanded, talked about or thought about.
I sensed its importance the first time I heard the phrase. When Ralph said that the stuff that’s not on balance sheets is more important than the stuff that is, that seemed obvious to me. In the ’90s, a school called human capital accounting tried to ascribe a number to the value of human capital. And it died, for two reasons. No. 1, a lot of people resisted the idea of putting a price on people, although labor markets do it. And two, it’s the wrong thing to do. To simply add up the value is not as interesting as finding measures that work with management strategies. What we’re really trying to do is improve the return on capital and what we do with that.
QD: You write that an “ever-growing percentage of people are knowledge workers: Information and knowledge are both the raw material of their labor and its product.” What general traits should a knowledge worker possess to be successful?
Stewart: I’m not sure that the general traits a knowledge worker should possess are a lot different from traits we should all possess.
Knowledge work that pays well will not be routine work. Anything that you can do the same way twice can and will be automated because the cost of automating has gone down so much and the costs of customizing have gone up. I recently read that picking up the phone in a call center now costs about $47, vs. $28 not too many years ago. When something costs that much and when, at the same time, it’s driving the cost of information technology down so fast, routine work will disappear; it will be automated. The economics are inexorable.
It sounds rather clichéd, but it turns out that all those people who were touting a liberal education were right: The ability to learn is the underlying fundamental skill.
QD: The job market is developing an increasingly competitive atmosphere, where education and experience often oppose each other. What will an intellectual capital-based company value morea worker with 20 years’ experience or a 28-year-old MBA with little work experience but a lot of formal education?
Stewart: It depends on the company. The old “experience vs. education” it’s usually you’re overqualified and underexperienced. I don’t think that’s any different. But it used to be that the only way we could get at the wisdom of graybeards was to bring them in from the field and put them in the office. You had to put them at a desk in the center, from which their wisdom could radiate out into the field. Which meant, of course, that your best people never talked to customers.
Now, with so many networks and communications systems, it’s increasingly possible to have experience out in the field as well as at headquarters, and to have everybody in the organization benefiting from that wise old head, even though he or she is in Timbuktu dealing with customers.
As I age, I certainly hope that people will learn the value of wisdom over wet-behind-the-ears, raw talent.
QD: In chapter three, you write: “Knowledge workers, alone or in teams, plan, organize and execute many aspects of their work.” You infer that this is one reason middle management is disappearing. Do you foresee management continuing to erode?
Stewart: I don’t know how many middle managers we’ve got left. But I don’t see their ranks growing.
It is true that we have, in some companies, so scarified the ranks of middle managers that we might not be training enough general managers. Some companies are experiencing a shortage of general managers with talent; other companies have always had a trade surplus in managerial talent. Given the small number of middle managers that we will have, I hope we will see a reconsideration in companies about training enough general managers.
QD: You quote somebody who claims that most CEOs say that only 20 percent of the knowledge in their companies is used. What is the most important thing a company can do to increase that percentage?
Stewart: There are a number of things. One approach is to eliminate obstacles, which include everything from overweening bosses to unnecessary bureaucratic hurdles to the fairly familiar litany of obstacles that people from Deming on have described.
A second set of issues revolves around vision and values, which is to say, “If I know where I’m going or what I’m doing or why, I will be less likely to futz and flounder.” So a clarity around direction, purpose and values is extremely important.
Third, clarity around projects. Work is organized increasingly around projects, and the clearer we make that in our organizational design and reward systems, the less likely we’ll be to waste time and talent, and the more likely we’ll be to know how to direct it.
And fourth, a series of issues centers around customers. This may be the single biggest thing that people can doincrease the number of people who are in direct or nearly direct contact with customers and also increase the amount of time they spend with and among customers.
Every bit of intermediary filtering between me and the customer is a potential waste of my brain, and if you, a customer, ask for something, every obstacle that comes between my ability to fulfill your request at a profit is also a potential way of wasting brainpower.
QD: In your research, what was the best example you found of a company making effective, successful use of its intellectual capital?
Stewart: There are different ways of looking at that. You can take examples of companies that have cleaned up their act, or have used tools and techniques of knowledge management and analysis, intellectual capital and so forth, to become more efficient. That’s one batch. And then you can look at knowledge creation and knowledge companies, brainpower companies, asset-free companies. I would be reluctant to cite a single company as being a paragon of any of these.
Visit Thomas Stewart’s Web site at members.aol.com/thosstew/.