2007/06/01 08:35 Thomas Stewart, "The Wealth of Knowledge"

2007/06/01 08:35 Thomas Stewart, "The Wealth of Knowledge", Rotman Lifelong Learning Conference, Toronto

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[Roger Martin]

Have received the largest grant to a Canadian business school from the Ontario Government

Thomas Stewart

  • Runs Harvard Business Review magazine
  • Had written Intellectual Capital, second book Wealth of Knowledge

[Editor-in-Chief and Managing Director, Harvard Business Review; Author, The Wealth of Knowledge: Intellectual Capital and the Twenty-first Century Organization (Currency, 2001); Intellectual Capital: The New Wealth of Organizations (Currency, 1998)]

[Thomas Stewart]


Iconic CEO, in a hotel in New Orleans:  where am I, and why am I here?

Theme of conference as thinking to win

  • Thinking is to business as justice is to military
  • Shouldn't deny intellectual streak
  • When Harvard Business School started:  is business something that should be taught in universities?
  • Bias to action

Ted Levitt: 

  • Faculty is bad writers, use passive voice, never telling interesting stories
  • Business people are impatient readers, want bullet points
  • HBR is a magazine by people who won't write, and people who don't want to read

It's a paradox in business

Make an economic case for thinking:

  • If take it serious, it changes the way do you do business, manage

Two questions:

  • What is it that will make a company successful over 20 to 30 years?  
    • Capital, assets, things that appear on the balance sheet, as source of competitive advantage, or things not on a balance sheet, e.g. relationships
  • How many think that the primary role of managers and leaders in companies over the next 20 to 30 years to drive change or preserve continuity?
    • When people manage continuity better, they have less reason to manage change
    • Change is extremely important
  • Talents and skills matter more than physical and financial assets

Chart: commodity prices go down

  • Commodity trap, e.g. Nigeria has oil
  • Wealth extracted from a place isn't as valuable as wealth created in a place

Chart: Wages in Europe

  • Pre-industrial revolution, 1500-1800, odds doing better than mother or father weren't good
  • After industrial revolution, wages go up
  • Pattern changes, as people applying brainpower, and start using industrial machinery
  • Revolution of 1848, and social unrest, as things are changing, and generally for the better
  • See price of food, it costs less to eat, and people eat a lot more

Ideas are capital, and everything else is just money

Four steps:

  • Role of money in what we buy and sell
  • Knowledge separates winners from losers
  • Knowledge defines work
  • Returns to knowledge should produce larger returns

Follow the money

Neil Workman: started a company collecting debt from Maine fishermen

  • Small fisherman, with a few large companies (e.g. Disney buys lots of fish), and small restaurants with no assets (e.g. can't collect after a few days)
  • South Street Seaport restaurant, got a bullhorn and told diners that fish hadn't been paid for
  • Better:  prevention
  • Could know who didn't pay bills, and who did
  • Then started collecting data on changing in restaurants, e.g. a new CFO at Long John Silver, or new manager at Disney Orland
  • Clients said: if you knew this, why don't we?
  • Fax was new, created SeaFax
  • Sold naughty list, nice list, and directory
  • Similar to poultry for fish
  • Then published on CDROM, as a yellow pages
  • Then Neil Workman was selling half a dozen knowledge products, while still collecting debts: really selling knowledge

Three generic ways to sell knowledge:

1. Install knowledge:  put knowledge into a product

  • e.g. mobile phone, compared to old dumb phones
  • Can put knowledge into automobiles, into computers

2. Distill knowledge

  • e.g. Neil Workman
  • e.g. Maritime insurance, also knows customs and maps, for Miller's Encyclopedia on when you get through ports

3. Black box knowledge:  can't tell it, but you can hire me

  • Consultants

Consider. GE, under Jack Welch

  • Engines, also sell repair and services
  • Service strategies that go with product strategies
  • Similar at IBM

There are companies that don't think about this

  • Have to trade off commoditization over scale
  • Risk of just good enough

Worry about Google:  don't need HBR, just need enough data to get through the day

Black box strategies:  advantage of high prices, but star players may get hit by a bus or raided

Roger Martin: capital versus talent

Should have this discussion openly

  • Glue on cardboard boxes, but being paid by the pound, and had no way to monetize to go to Unilever
  • We've found a well to sell you less of our product, can you help us find a way to make a return at this?

Knowledge assets create this type of value, and monetize

Assets: something that transform inputs

  • Not the definition of accountants:  who think assets are something you own
  • There are non-physical assets, e.g. recipe for cola
  • Transform physical assets into something of higher value
  • Can also transform information assets into something of higher value, e.g. lawyer
  • Assets without application are a waste

Need a process of identifying knowledge assets that are useful

  • Norwegian advertising agency:  something is valuable in that it's valued by a customer, and it's unique
  • If's a grain of sand on the beach, not valuable
  • If it's a curio, may not have value

Intellectual assets:  what do we sell that is unique and valuable?

  • Ask executives, workers, customers
  • If responsive and innovative, then how do we create that innovativeness and responsiveness?
  • This gets to the intellectual capital question
  • Are we responsive because of computers? because of customers?

Three types of assets

1. Human capital:

2. Structural capital, e.g. patents, things that don't go home at night

3. Customer capital: relationship capital, talk and communicate with clients

Can think about 3 different types of restaurants

  • Alice Waters, Chez Panisse:  You go there because of the chef
  • McDonald's:  formula
  • Local pub or diner, where food is bad, but the waiter calls you "hon": for the warmth and experience

Each company has all of these types of assets, but they go to companies different ways

  • McKinsey:  smartest people
  • Accenture: modules that can be assembled
  • Bain: never leaves

If I want to change my strategy, how do I change my intellectual capital?

  • Where to invest?
  • How to manage the company?

Managing knowledge workers

  • Drucker:  what's the job, and the knowledge base to do the job?
  • Industrial jobs, job decided by supervisors
  • Today, every day, decide, what is the job?
  • If this is what I need to do today, how to I provision things to do the job today?

Xerox: automated call centre

  • Tried case-based reasoning
  • No one used it
  • Tried instead financial incentives for people who used it best
  • Winner was Carlos: cowboy, knew everything, he never went near the software
  • Runner up was Trish: mother who came to work, didn't know copiers, they didn't use the software, she sat next to Carlos
  • Knowledge management problem:  who can sit next to Carlos
  • The most valuable knowledge isn't what you can get from software or a manual, it's tacit knowledge
  • Tacit means silent, but close to tactile
  • German: feeling that that you get in your fingertips

How to get to the most valuable knowledge, and share it?

  • Not just by sitting next to Carlos, but getting stories from Carlos circulating in the company

If returns to knowledge greater, than improbable romance between the suits and creatives

  • How do you create this conversation?
  • Publishing: hate the financial people

Three ideas

1. A company that wants to be a thinking company has to take off the suits, and allow people to be in your face

  • Richard Florida: Creative Class, a tolerance for the others
  • A city's ability to allow creative
  • How to enable this in a company?
  • G.E.: Strong finance, but it's an informal company
  • Informality is hard
  • Mike Zafirosky talking with Jack Welch:  honest conversations
  • Celebrate differences, ask people who don't speak at meetings

2. Two idea in innovation:  innovation as a machine (Thomas Edison, eureka to a process) and innovation as a magic garden (3M, give people 10% of the time)

  • Both are true
  • Teresa Amabile: brain freeze when someone has to be creative
  • Too many companies think it's one or the other

3. Time and place

  • Thinking matters, and have to validate the person when it's thinking
  • It takes 10-15 years for someone to become an expert, so why are moving people around every 18 months?


Open source.  Mozilla, and other companes that open up knowledge

  • Open source not just in software
  • P&G, connect and develop, for more chemists that we can employ
  • Eli Lilly
  • An emerging phenomenon
  • How to use open source to create proprietary advantage?  A paradox
  • When should I do it and not?
  • Should add to portfolio selectively, it's a solution to some problems

Waking: Open source collaboration.  Beyond black box strategies?

  • Creating a knowledge community
  • Traditional black box community puts the knowledge community inside the firm
  • Another strategy, opening it up, as an open box, community of practice

Knowledge offshore is cheaper, how much to invest there?

  • Seeing more and more high-end work going offshore
  • Long run, wages will equalize
  • For certain jobs in India, could pay someone cheaper in North America
  • It's a standard make-or-buy question:  what are risks, opporunities?  How much control do I want?
  • Engineers in Detroit, felt as it they too little control over workers in Bangalore
  • How close do you need to be to that person?
  • Intellectual capital trilogy: human capital, structural capital, customer capital
  • How to create the experience?  Then want to create it at low cost, secondary consideration