Sample text for Intellectual capital : the new wealth of organizations / Thomas A. Stewart.

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Counter Foreword

King Louis XVI: "Is it a revolt?"
Duc de la Rochefoucauld-Liancourt: "No, Sire, it is a revolution."

Information and knowledge are the thermonuclear competitive weapons of our time.  Knowledge is more valuable and more powerful than natural resources, big factories, or fat bankrolls.  In industry after industry, success comes to the companies that have the best information or wield it most effectively--not necessarily the companies with the most muscle.  Wal-Mart, Microsoft, and Toyota didn't become great companies because they were richer than Sears, IBM, and General Motors--on the contrary.  But they had something far more valuable than physical or financial assets.  They had intellectual capital.

In a sentence: Intellectual capital is intellectual material--knowledge, information, intellectual property, experience--that can be put to use to create wealth.  It is collective brainpower.  It's hard to identify and harder still to deploy effectively.  But once you find it and exploit it, you win.

You win because today's economy is fundamentally different from yesterday's. We grew up in the Industrial Age.  It is gone, supplanted by the Information Age.  The economic world we are leaving was one whose main sources of wealth were physical.  The things we bought and sold were, well, things; you could touch them, smell them, kick their tires, slam their doors and hear a satisfying thud.  Land, natural resources such as oil and ores and energy, and human and machine labor were the ingredients from which wealth was created. The business organizations of that era were designed to attract capital--financial capital--to develop and manage those sources of wealth, and they did it pretty well.

In this new era, wealth is the product of knowledge.  Knowledge and information--not just scientific knowledge, but news, advice, entertainment, communication, service--have become the economy's primary raw materials and its most important products.  Knowledge is what we buy and sell.  You can't smell it or touch it; even that satisfying thud from a slammed car door is probably the result of clever acoustical engineering.  The capital assets that are needed to create wealth today are not land, not physical labor, not machine tools and factories: They are, instead, knowledge assets.

This book will show how, in fact, seemingly vague ideas of "managing knowledge" and "leveraging intellectual capital" can yield results and agenda items that employees, managers, and leaders can do something about--real work, not fancy talk.  We'll take intellectual capital and look under the hood, so to speak, to show how the stuff works and how to make it work better.  Old-style business organizations don't manage knowledge well--they weren't designed to.  Now business must learn to manage knowledge.  Someone who knows how to walk and run on land has to learn new skills to swim and dive and get around in water; in a similar way, the skills individuals and companies need to succeed in their new environment, the knowledge economy are, in  many cases, different from the ones they are used to.

  We'll learn why most companies don't manage their corporate brainpower--the most important asset they have--and see how untold billions of dollars of revenues and profit await those who learn how to do it;

We'll see how intellectual capital can free up other capital, such as equipment, cash, and inventory, liberating financial resources, increasing corporate agility, and dramatically increasing profitability;

We'll learn important new principles of managing people in an information economy--so that companies can really mean it when they say "people are our most important asset";

We'll see why, when knowledge is power, power flows downstream toward customers, giving them vastly more influence on the companies that sell to them, and we'll see how a company--any company--can reposition itself to share in that new wealth;

We'll discover some surprising counterintuitive truths about managing in the Knowledge Era; for example, we'll learn how planned ignorance can sometimes be more valuable than knowledge, and why business leaders, who spend much of their time trying to construct management systems, would do better figuring out ways to make those systems disappear;

We'll see why and how new models of organizational design will forever supplant familiar bureaucratic and hierarchical schemes;

We'll see how the emergence of a new economy affects careers--for everyone--and what new strategies will help you succeed.

What's new?  Simply this: Because knowledge has become the single most important factor of production, managing intellectual assets has become the single most important task of business.  It wasn't always so.  In 1940, Buckminster Fuller wrote a long article in the tenth anniversary issue of Fortune magazine.  It was full of the quirky, marvelous stuff that makes Buckminster Fuller such fun to read: He juxtaposed the production of silk stockings with the number of radios in use with the number of tons of coal shipped with the number of industrial machines on factory floors....

When he'd added it all up, Fuller had demonstrated a fundamental change in what moved the economy.  In the late nineteenth century, Fuller showed, the best way to measure economic activity was to look at the use of raw materials--how much coal was mined, how much steel was made.  By 1940, that had changed.  The measurements that really showed how vigorously the economy was working involved the use of energy: kilowatt hours of electricity produced, gasoline consumed, kilometers traveled by rail or air.  Thinking of that time, retired Citicorp chairman Walter Wriston recollected: "When I was a kid in the bank, the key economic indicator we looked at was freight-car loadings." Then he went on: "Who the hell cares about them now? What we need is a way to measure the knowledge we bring to the work we do."

Muscle power, machine power, even electrical power are steadily being replaced by brainpower.  Peter Drucker says that the amount of labor needed to produce an additional unit of manufacturing output has fallen 1 percent a year since 1900, as machines have taken over jobs that muscles once did.  After World War II, the amount of raw material needed for each increase in manufacturing GDP began falling at about the same rate.  A few years later--beginning about 1950--the amount of energy manufacturers needed began to fall, again at 1 percent a year for any given unit of additional output.  What's taken the place of matter and energy is intelligence.  Since the turn of the century, the number of educated workers on company payrolls has risen, according to Drucker, at that same 1 percent annual rate.  We still speak of the United States, Japan, and Western Europe as "the industrialized world," but that is a misnomer.  Agriculture, construction, manufacturing, and mining employ fewer than one in four Americans and, as we will see, even those people work principally with their heads rather than with their backs and hands.  We are all knowledge workers now, working for knowledge companies.

Library of Congress subject headings for this publication: Intellectual capital