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

This digest was created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. The content should not be viewed as an official transcript of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. The digest has been made available for purposes of scholarship, posted on the Coevolving Innovations web site by David Ing.

[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?

[Questions]

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

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