Two of the most important questions concerning the long-run health of the modern organization competing in an information economy are: (1) How do organizations learn? and (2) How does the "corporate brain" really work? The increased attention to what Thomas Stewart terms "intellectual capital"—the sum of everything everybody in an organization knows that gives it a competitive edge"—is stimulating ways of thinking about these questions.
As Stewart and others have concluded, intellectual capital comprises a "hierarchy of knowledge"—data, information, knowledge, and wisdom—making up both explicit (data and information) and tacit (knowledge and wisdom) components. Explicit intellectual capital can be identified, quantified, stored, accessed, and accumulated through the effective use of technology by and for managers. Tacit capital, however, is stored in the minds of people and has to be unlocked in ways that develop, recombine, and provide the basis for implementing ideas. It requires everything from formal education to "water cooler conversations" to get members of an organization to exchange and build on each others' ideas. Given the complex nature of tacit knowledge and the way it is developed, one can conclude that as intellectual capital becomes more important in the mix of what all organizations create, continuity—of leadership and among employees—may be as important as any other element of strategy. But just how much employee continuity is best for the development of the corporate brain?
If employees are the "brain cells" needed to develop intellectual capital and things like continuity of employment, organization structure, and incentives equivalent to the synapses by which information is exchanged and knowledge created, how many (if any) cells are destroyed in the "corporate brain" when downsizing occurs? Or when organization development efforts are curtailed? Or when knowledge development is subcontracted to an army of "free agents?" Or when employees are discouraged from engaging in too much "water cooler time" in the name of preserving next quarter's bottom line?
Some organizations, like Southwest Airlines, seek to minimize employee turnover and go to great lengths to avoid downsizing, concentrating instead on very careful hiring and training. Others, like GE, in addition to providing an array of educational and other opportunities, follow the practice of periodically identifying a prescribed percentage of managers—in GE's case 10%—who are candidates for possible dismissal, in part under the assumption that selection and training processes are not perfect and that this is the best way to raise the quality of management in a large organization on a continuing basis. These practices, just two among many strategies for building intellectual capital, raise interesting questions.
Which is best for the health of the organization and the ways in which intellectual capital are created? Are there conditions under which each can be beneficial? If so, what are the conditions? What strategies to build intellectual capital are you pursuing in your organization? What do you think?
For those wishing to explore this topic further, the following books provide thoughtful starting points:
Thomas H. Davenport and Laurence Prusak, Working Knowledge (Boston: HBS Publishing, 1998).
Thomas A. Stewart, The New Wealth of Organizations (New York: Currency Doubleday, 1997) and The Wealth of Knowledge (New York: Doubleday, 2001).