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Windows at Work /
Cheryl Currid
Cheryl Currid

Put a Price On Your Workers' Heads
What's inside your employees' brains is more valuable than what's on their desks.

The emerging jewel of corporate assets in the information era is knowledge-the stuff stored inside people's heads. Although "intellectual capital" is difficult to measure, a growing body of analysts and academicians believe organizations should put it on the books, for a variety of reasons. For one, it improves a company's market capitalization. Netscape once achieved a $4 billion market cap based on its stock price. The little company's sales were barely a few million a year, but investors blew up the stock price based on intangibles, such as what's inside the heads of Marc Andreessen, Jim Barksdale and Jim Clark.

Tech stocks tend to march to the beat of a different drummer when it comes to investor sentiment, but once other industries begin to see the bottom-line potential of embracing information as an asset, they'll likely march in the same direction.

For years, financial folks, economists and tax authorities encouraged organizations to set up their books to value hard assets. Just tally up the bricks, mortar, machines and furniture.

But it's not that nifty leather-topped mahogany desk that's making the business decisions, it's the individual who sits behind it. Even so, companies continue to value the desk at $3,000, audit it, insure it and use its value to determine the organization's worth. The person, meanwhile, counts only as an expense. Seems a little silly, doesn't it?

In reality, managing knowledge effectively may be the only sustainable advantage in the marketplace. Whether you're expanding, reengineering or downsizing, nothing works right if your organization is staffed with dummies. The tricky part is finding a formula for putting a dollar value on smarts.

I just returned from a Web-based tour of organizations that encourage knowledge capital. From Europe to South America, and all points beyond, consultants are hawking methods for calculating the value of brain power.

One company that's calculating its brain trust is Morgan & Banks, one of Australia's largest management consulting and recruitment firms. It had a market value in August 1996 of $65 million, even though its net book value lists at $8 million.

What accounts for the difference? According to Dr. Karl Erik Sveiby, founder of Sveiby Knowledge Management, it's the value of the firm's invisible assets (see http://www2.eis.net.au/~karlerik/InvisibleBalance.html). Sveiby breaks intangible assets into three categories: internal structure (patents, concepts, and computer and administrative systems), external structure (relationships with customers and suppliers, brand names, trademarks and reputation) and individual competence (employees' work skills, education, experience, values and social skills)

Dr. David Skyrme, of management consultancy David Skyrme Associates (http://www.skyrme.com/), is convinced intangible assets will determine future competitiveness in the emerging global networked economy.

The results of a recent A.T. Kearney survey of executives in 11 countries (http://www.atkearney.com/capital/news9d.html) highlights management's acknowledgement of the increasing importance of workers' knowledge. As organizations restructure, they replace unskilled jobs with those that require mental acuity and problem-solving ability. More than one-third of respondents believe such issues are critical to the success of their strategic plans.

Big guys acknowledge knowledge

Major companies like Skandia, Nasdaq, Chevron, Dow Chemical and a host of others have already set up director-level positions in charge of intellectual capital.

Whether your workers use an abacus, a calculator or a spreadsheet, what counts is that they get to the right answer quickly. Then, the best company is the one that figures out the right thing to do and does it.

The issue of valuing intellectual assets will undoubtedly plague financial people for some time to come. It's more than a mind-set change; it's a whole new way to look at business. Once a concrete formula for measuring intellectual capital is in place, companies with big intangible assets will watch their bottom lines expand, their stock prices soar and their clout with their loan officers increase.

WinMag Analyst Cheryl Currid is president of Houston-based Currid & Company, a research and consulting firm. Contact Cheryl in the "Windows at Work" topic of WINDOWS Magazine's areas on America Online and CompuServe, or care of the editor at the e-mail addresses here.

Copyright (c) 1997 CMP Media Inc.

Windows Magazine, March 1997, page 49.

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