Intellectual Capital = Competence x Commitment
In the ongoing debate about where managers should focus their attention, something has been missing: a focus on intellectual capital. Intellectual capital — the commitment and competence of workers — is embedded in how each employee thinks about and does work and in how an organization creates policies and systems to get work done. It has become a critical issue for six reasons:
First, intellectual capital is a firm’s only appreciable asset. Most other assets (building, plant, equipment, machinery, and so on) begin to depreciate the day they are acquired. Intellectual capital must grow if a firm is to prosper. A manager’s job is to make knowledge productive, to turn intellectual capital into customer value.
Second, knowledge work is increasing, not decreasing. James Brian Quinn has observed that the service economy is growing directly in service industries such as retail, investments, information, and food and indirectly in traditional manufacturing industries like autos, durable goods, and equipment.1 As the service economy grows, the importance of intellectual capital increases. Service generally comes from relationships founded on the competence and commitment of individuals.
Third, employees with the most intellectual capital have essentially become volunteers, because the best employees are likely to find work opportunities in a number of firms.2 This does not mean that employees work for free, but that they have choices about where they work and, therefore, essentially volunteer in a particular firm. Volunteers are committed because of their emotional bond to a firm; they are less interested in economic return than in the meaning of their work. Employees with this mind-set can easily leave for another firm.
Fourth, many managers ignore or depreciate intellectual capital. In the aftermath of downsizing, increased global competition, customers’ higher requirements, fewer management layers, increased obligations, and pressures exacted from almost every other modern management practice, employees’ work lives have not always changed for the better. In a recent workshop with sixty high-potential managers from a successful global company, we discussed careers. Of these managers (mostly in their thirties and early forties), 50 percent did not think that they would stay with the company long enough to retire, not because of lack of opportunity but because of the enormous stress and high demands. Within this group, 90 percent personally knew someone who had voluntarily left the company in the past six months because of the increased workload.
1. J.B. Quinn, Intelligent Enterprise (New York: Free Press, 1992).
2. P.F. Drucker, “Toward the New Organization,” Leader to Leader (San Francisco: Jossey-Bass, 1997), pp. 6–8; and
D.E. Bowen and C. Siehl, “The Future of Human Resource Management: March and Simon (1958) Revisited,” Human Resource Management Journal, volume 36, number 1, 1997, pp. 57–64.
3. D. Ulrich, R. Halbrook, D. Meder, and M. Stuchlik, “Employee and Customer Attachment: Synergies for Competitive Advantage,” Human Resource Planning, volume 4, 1991, pp. 89–102;
B. Schneider and D.E. Bowen, Winning the Service Game (Cambridge, Massachusetts: Harvard University Press, 1995);
B. Schneider and D.E. Bowen, “Employee and Customer Perceptions of Service in Banks: Replication and Extension,” Journal of Applied Psychology, volume 70, number 6, 1985, pp. 423–433; and
B. Fromm and L. Schlesinger, The Real Heroes of Business and Not a CEO among Them (New York: Doubleday, 1993).
4. J.B. Quinn, “Leveraging Intellect,” Academy of Management Executive, volume 10, number 1, 1996, pp. 7–27;
H. Saint-Onge, “Tacit Knowledge: The Key to the Strategic Alignment of Intellectual Capital,” Strategy and Leadership, volume 2, March–April 1996, pp. 10–14; and
T. Stewart, Intellectual Capital (New York: Double-day/Currency, 1997).
5. W. Ulrich, “Identification and Referral of Depressed Secondary School Students” (Ann Arbor, Michigan: University of Michigan, doctoral dissertation, 1989).
6. The argument that aspirations should exceed resources is made in:
G. Hamel and C.K. Prahalad, Competing for the Future (Boston: Harvard Business School Press, 1994).
7. S. Kerr, personal conversation.
8. Work Out has been described in a number of publications; this discussion is based on my experience and work with General Electric.
9. M. Hammer and J. Champy, Reengineering the Corporation (New York: HarperBusiness, 1993).
10. C. Larson and F. LaFasto, Teamwork (Newbury, California: Sage Publications, 1989);
S. Mohrman, S. Cohen, and A. Mohrman, Jr., Designing Team-Based Organizations: New Forms of Knowledge Work (San Francisco: Jossey-Bass, 1995); and
J.R. Katzenbach and D. Smith, The Wisdom of Teams (Boston: Harvard Business School Press, 1993).
11. This example comes from a speech by Thurgood Marshall in 1992 on leadership in the military model that he presented to General Electric employees charged with developing GE leaders.
12. B.P. Sunoo, “How Fun Flies at Southwest Airlines,” Personnel Journal, June 1995, pp. 37–41.
13. D. Anfuso, “PepsiCo Shared Power and Wealth with Workers,”Personnel Journal, June 1995, pp. 42–49.
14. For a review of trends in development and learning, see:
D. Ulrich and H. Greenfield, “From Training and Development to Development and Learning,” American Journal of Management Development, volume 1, number 2, 1995, pp. 11–22.