This internal report aims to transfer my (the author’s) structural capital and tangible knowhow in building intellectual capital within a consultancy business. The report is based upon 15+ years of experience in building intellectual capital in a number of international consultancy businesses. The roles I have had in the different organisations have been as CEO, Chairman, VP of Training, advisor and external consultant. The definition of Intellectual Capital used in the report is based upon Leif Edvinsson and the work of Intellectual Capital of Sweden AB. Professor Leif Edvinsson divided Intellectual Capital into three main categories plus the business idea: relational capital, structural capital and human capital. The difficult thing with consultancy firms, especially management consultants operating in a premium market, is capturing, sharing, diffusing, refining and generating new explicit knowhow. However, tacit knowhow is even harder to capture, share, diffuse, refine and generate within an organisation with individualistic knowledge workers, and is thus dependent upon the social capital of the firm.
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1 White Paper A STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM United Kingdom 5 th floor, Imperial House 15–19 Kingsway London WC2B 6UN United Kingdom Ph: +44 208 133 3125 Fax: +44 845 280 3818 Sweden Jakobs Torg 3, 1tr 111 52 Stockholm Sweden Ph: +46 84 11 87 10 Fax: +46 85 010 9637 Spain Paseo de Gracia 44, 8C 08007 Barcelona Spain Ph: +34 66 005 6419 Fax: +34 93 396 1973 Switzerland 11 Rue du Port 1204 Genève Switzerland Ph: +41 22 575 2023 Fax: +41 22 594 8005 South Africa 2 nd Floor, 1 Sandton Drive Sandton 2196 Johannesburg South Africa Ph: +27 11 327 8705 Fax: +27 86 685 8444
4.6.5. Principles #5 Clients shall pay for the lunch 23
4.6.6. Principles #6 The team first 23
4.6.7. Principles #7 Documenting the general, relating to the specific 24
4.6.8. Principles #8 What is not possible to measure shall not be done 24
4.6.9. Principles #9 Go for low-hanging fruits 24
4.6.10. Principles #10 Tell stories 24
APPENDIX A: ELEVEN COMMON EXCUSES NOT TO WORK WITH STRUCTURAL CAPITAL FROM AN EMPLOYEE PERSPECTIVE 25
5. REFERENCES 26
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STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
1. INTRODUCTION
This internal report aims to transfer my (the author’s) structural capital and tangible knowhow in building intellectual capital within a consultancy business. The report is based upon 15+ years of experience in building intellectual capital in a number of international consultancy businesses. The roles I have had in the different organisations have been as CEO, Chairman, VP of Training, advisor and external consultant. The definition of Intellectual Capital used in the report is based upon Leif Edvinsson and the work of Intellectual Capital of Sweden AB. Professor Leif Edvinsson divided Intellectual Capital into three main categories plus the business idea: relational capital, structural capital and human capital. The difficult thing with consultancy firms, especially management consultants operating in a premium market, is capturing, sharing, diffusing, refining and generating new explicit knowhow. However, tacit knowhow is even harder to capture, share, diffuse, refine and generate within an organisation with individualistic knowledge workers, and is thus dependent upon the social capital of the firm. This has also been pointed out by researchers such as Nonaka & Takeuchi (1995) and McKenzie (2006).
The reasons for focusing on IC within a consultancy company are that IC is the major asset of which the structural capital part is the only thing that does not go home every day. The strategic advantages of a working IC model within a consultancy company are:
1. Easier to scale and fit the organisation to the market conditions over time2. Impacts the talent market positively, as it will attract, retain and develop global talents; younger practitioners as well as senior advisors3. Decreases the cost of human capital, as it will be less expensive to attract, retain and develop4. Possible positive impact on price strategy, as it is possible to argue for more value5. Increased internal efficiency, as it avoids ‘reinventing the wheel’ 6. Less risk, as the most valuable assets are legally and morally linked to the brand and the firm
The most crucial part of getting IC to work within a consultancy company is the link between the formal documentation and the human behaviour: the transfer mechanisms. I have, in the past, experienced how large law firms employ someone to build their structural capital, consisting of word templates and standard documents, but in just a few months it has diverged into many versions without instructions and the background information has ended up at a lower quality, with more time spent on the drafting of legal agreements and PMs. The same pattern can also be found in many management consultancy firms, where people are hired, temporarily or permanently, to compensate for a lack of
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STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
organisational insights into why, how and what to capture, share, transfer and refine. It always, in my experience, ends up in the same situation: a partner gets frustrated and fixes it by her-/himself, and even more versions are created and no-one knows what standard to follow, and then another partner does the same thing and the situation gets even worse. This is also pretty much in line with Peter Senge's Systems Archetypes (which will be explored later on in the report). .
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STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
Dealing with structural capital, the memory and the sustainability of the IC is a complicated task, and many managerial dilemmas need to be handled:
Simplicity vs complexity Decentralisation vs centralisation Top-down vs bottom-up management Theory vs practice Control vs engagement Collectivism vs individualism Introversion vs extroversion Stability vs change
The approach used in this report is a holistic and qualitative one based on my experience, as well as the insight from the thought leaders within the area.
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STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
2. GENERAL THEORY
Nonaka & Takeuchi (1995) point out that there are four possible transformations between tacit and explicit knowledge; see Figure 1. The Nonaka & Takeuchi framework is used in Figure 1 to map the different ways of transferring knowledge between the tacit and the explicit level.
Figure 1 Adopted from Nonaka & Takeuchi (1995), a model used to map the different aspects of transferring knowledge between the tacit and the explicit level.
It is imperative to understand how tacit knowledge is transferred (otherwise known as diffusion), as this is one of the hardest tasks. By improving the transfer of tacit knowledge, the speed and quality of the diffusion will increase, as well as stimulating the refinement and generation of new structural capital.
2.1. Organisational Learning
Peter Senge, one of the thought leaders within the area of Organisational Learning, points out in Senge (1990) that a learning organisation exhibits five main characteristics: systems thinking, personal mastery, mental models, a shared vision, and team learning.
According to Wikipedia (2011a), systems thinking is essential to understand how structural capital is both captured as well as diffused within the organisation; the personal mastery is the commitment by an individual to the process of learning.
7
From explicit
From tacit
To explicitTo tacit
Publications• Case stories• Best Practice
• Business Case• Lecturing
Research• White Papers
• Articles• Books
Group Learning• Coaching
• Collaboration online and in
classroom
Individual learning• Case stories• Best Practice
• Manuals• Methods
• Processes• Business Case
STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
The assumptions held by individuals and organisations are called mental models. To become a learning organisation, these models must be challenged. Individuals tend to espouse theories, which are what they intend to follow, and theories-in-use, which are what they actually do. Similarly, organisations tend to have ‘memories’ which preserve certain behaviours, norms and values. In creating a learning environment it is important to replace confrontational attitudes with an open culture that promotes inquiry and trust. To achieve this, the learning organisation needs mechanisms for locating and assessing organisational theories of action. Unwanted values need to be discarded in a process called ‘unlearning’. The development of a shared vision is important in motivating the staff to learn, as it creates a common identity that provides focus and energy for learning. The most successful visions build on the individual visions of the employees at all levels of the organisation, thus the creation of a shared vision can be hindered by traditional structures where the company vision is imposed from above. Therefore, learning organisations tend to have flat, decentralised organisational structures. The shared vision is often to succeed against a competitor. The accumulation of individual learning constitutes team learning. The benefit of team, or shared, learning is that staff grow more quickly and the problem-solving capacity of the organisation is improved through better access to knowledge and expertise. Learning organisations have structures that facilitate team learning, with features such as boundary crossing and openness. Team learning requires individuals to engage in dialogue and discussion; therefore, team members must develop open communication, shared meaning and shared understanding.
According to McKenzie (2006), there are three dimensions of social capital that impact the use of knowledge to create business value:
1. Structure: loose ties are easy to manage; close ties carry tacit knowledge better (on the other hand, close ties can reduce the possibility of thinking new thoughts)
2. Cognitive compatibility: they way we see the world and the degree of common perspective
3. Quality of relationship: the level of trust
McKenzie (2006) also states that there are four key factors involved in using the organisation’s knowledge to create business value:
1. The number of ideas and opportunities an organisation has access to2. The capacity, on organisational and personal level, to transform ideas into
innovations3. The insights of the value possible to create from knowledge sharing4. The possibility of generating mutual benefits
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STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
2.2. Professional Service Firms
According to Løwendahl, Revang & Fosstenløkken (2001), successful Professional Service Firms (PSF) create value for their clients and their members, and it is done on two levels: the individual level and the collective level. Consultants are also motivated by intrinsic as well as extrinsic factors, whereas many consultancy companies focus on the extrinsic rewards such as remuneration, bonus and pension packages. However, many consultants are driven by intrinsic factors such as curiosity, status, reputation and work–life balance.
According to Mullins (2006), the link between job satisfaction and performance has become more and more evident. Mullins (2006) states that there are five contractual levels affecting job satisfaction:
The knowledge contract. Through increased knowledge involvement and measurement the knowledge contact will be strengthened, meaning that the company will be clearer about what is required and the employee’s skills and knowledge will be better used and appreciated.
The psychology contract. This is about the relationship between the employee and the organisation.
The efficiency/rewards contract. How equal and acceptable the rewards are to the employees, and how manageable they are to the company.
The ethical contract. How the values are perceived and what the values actually are. This is also linked to the employer brand, i.e. the talent market perception of the company’s values.
The task structure contract. This is about specialisation and work description, and is also linked to how and when to build structural capital.
By adding the knowledge involvement, the human capital is more explicitly addressed. In the report, What Makes the Most Admired Companies Great, published by Hay Group (2009), it is stated that the most admired companies use performance measurement to focus on:
Growth
Profitability
Operational excellence
Building customer loyalty
Building human capital
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STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
To analyse the internal factors, from the perspective of IC creation, the McKinsey7S model can be used; see Figure 2. Typical of the comments I have received over the years is this:
“It was clear to us that we did what we were supposed to do to contribute in the alignment of the business, but from our point of view that was not the case with the other business areas. It seemed as though the management of other business areas did not share the vision and objectives.”
―Vice President
Mistrust between the management of business units is common rather than rare. Another comment from a group where I implemented SharePoint was:
“Initially, during the implementation phase of the SharePoint platform, we were hesitant to share all of our model and processes with the other companies, and co-workers, in the Group. Since all the companies worked in adjacent areas, and each had extremely competent and ambitious people with a goal of maximising their business, it became a competitive situation. You could sense a we can do what they can do attitude from some parts of the Group; an attitude leading people to refrain from uploading certain documents.”
―Managing Director
Figure 2 The McKinsey7S model
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Shared Values
Structure
Systems
Style
Staff
Skills
Strategy
STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
In another interview with a consultant in one of the companies I worked with, he stated:
“SharePoint contributed most for the sales force. It allows them to collect offers, contracts, presentations, pitches, and support agreements. SharePoint was never really adopted by the consultants, and therefore has never fully been adopted by 100% of the company – this means that it is not working as a tool that helps in every project, on a daily basis.”
―Consultant
2.3. Potential negative limiting loop
Another aspect occurs when investments are needed, in systems or employees working with the structural capital in capturing, sharing, diffusing, refining and generating. Many times, it is based upon voluntary work as well as investments, and there will always be a bill to pay to be able to run the show. The more the system will be used, the more resources will be needed to found it, and the fee will most likely constantly increase. Managers, and/or individual consultants (depending on the setup of the consultancy business), will, if they cannot see immediate effects on the investment, tend to refuse it. The increasing fee for handling the increased usage of the system can, and often does, cause counterproductive feedback, degenerating the perceived success of the knowledge process. The situation is called limits to growth. Limits to growth occur when a reinforcing positive feedback process is installed to produce a desirable result (a positive growth loop) but inadvertently creates secondary effects (a negative limiting loop) that put a stop to the growth (Senge, 1990).
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STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
2.4. Typical failures and pitfalls
Typical failures and obstacles, that can be analysed and potentially prevented by using the McKinsey 7S model when doing an IC cultural analysis, are:
1. The visions and objectives are not fully shared and aligned2. Mistrust between the business areas, and a perceived competitive
situation3. The management style is more focused on protecting its own interests
than on contributing to the group4. No low-hanging fruit visible5. Lack of communication and involvement
During the work-aligning strategy and in the culture there will be resistance and misinterpretations, such as:
I become interchangeable.Comment: On the contrary – you show everyone what you know, what you can do and position yourself. That is the kind of person we want.
I become a machine.Comment: No, you get a chance to create value instead of reinventing the wheel.
Other people will steal my ideas.Comment: They will steal them either way.
In Appendix A, my whole list of 11 excuses with comments is presented.
Alignment between staff values and organisational values has been shown to increase staff commitment, which can be both an advantage as well as a disadvantage, especially when it comes to consultants and managers who are credited with past successes and who are normally more powerful and influential. At the same time, it is important to avoid totalitarianism in which diversity is stifled in favour of a dominant value set, causing less agility and innovative capability.
During the process of aligning the knowledge process and defining the system, several dilemmas will occur. It is crucial to have trust in the organisation and be very clear about the purpose and goals.
2.5. The learning process of professionals
In 1984, the American researcher David A. Kolb published his book, Experiential Learning – Experience as the Source of Learning and Development (Kolb, 1983). His work had a great impact in the education and learning field, and his ideas and theories have had great influence on the development of models for lifelong learning. The concept of experience-based learning was already formulated in 500BC by Confucius, who described it like this:
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STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
“I hear and I forget. I see and I remember. I do and I understand.”
David A. Kolb’s theory of experiential learning differs from cognitive and behavioural theories (behavioural learning) primarily by emphasising the central role that experience has in the learning process. The theory aims to provide a holistic perspective on learning and combines experience, perception, cognition and behaviour.
The theory has its intellectual origins in John Dewey, who emphasises the need for new knowledge to be created out of experience, Kurt Lewin, whose research emphasises the importance of a person’s active participation in a learning situation, and Jean Piaget, who sees intelligence as the result of a person’s interaction with their environment. These three approaches to learning and development have many common nodes, which form the basis of Kolb’s theory.
2.5.1. Learning is an ongoing process
The theory of experiential learning assumes that our minds, our ideas and our thoughts are constantly shaped – and reshaped – through our experiences. We almost always have a picture of how a situation we are in should be developed. Often, however, our experience differs from our expectations. We therefore have to adapt, learn to handle the unexpected situation and thus change slightly. We have just learnt something. The purpose of education and learning becomes more a matter of stimulating people’s curiosity and willingness to explore new areas, not to memorise facts.
To see learning as an ongoing process means that all learning involves “learning about”; that in a teaching situation, to see a student’s mind as a “blank sheet” is thus impossible. We all have a more or less defined idea about the topic we will learn more about; a teacher’s role is therefore to modify a student’s old ideas, rather than to inculcate brand new ideas. The learning process is facilitated considerably if a training procedure begins by first engaging with the student’s personal beliefs and theories about the topic.
2.5.2. Lifelong learning
Most learning in our lives takes place spontaneously, naturally and in real life. Only a small part of our knowledge is the result of teaching and learning. For example, dealing with a situation that’s new and unknown to us gives us new knowledge. This changes us a little, and we are somewhat richer in our knowledge as we move on in life. Learning can thus be seen as a lifelong and ongoing process, where experience becomes an instrument that helps us to understand and deal with new situations in life.
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2.5.3. The learning process of Kolb
David A. Kolb’s model of experiential learning is the best known and established in the area. The model is based on four steps, or four ways in which learning can take place.
Figure 3 Kolb’s model for experiential learning
2.5.4. Concrete experience
Those who learn through concrete experience gain a feeling of control: their learning is based on experiences that are controlled through emotionally based assessments. If you have this learning style, the way you learn best is through concrete examples that engage you. Theoretical reasoning does not usually work as well. You tend to treat every situation as a unique case, instead of generalising and creating theories. Group work, in an environment where the teacher acts as coach and lets the students engage in independent learning, usually works well. A concrete-experiencing person is often a creative problem-solver who makes intuitive decisions, which is why they often tend to do well in unstructured situations.
2.5.5. Reflective observation
If you are a reflective observer, you learn by seeing and hearing. You prefer to rely on careful observation before making a decision. You may have somewhat inward-looking traits and may be introverted and quiet in class discussions. An ideal learning situation is lectures that permit objective observation. The teacher should ideally have the role of expert in the topic. Working under supervision or following instructions suits you well.
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concrete experience
observation of and
reflection on that
experience
formation of abstract concepts
based upon the reflection
testing the new
concepts
STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
2.5.6. Abstract thinking
The abstract thinker relies on logical thinking and a rational approach. You prefer situations that emphasise theoretical arguments and place the emphasis on understanding rather than on practical application. You are good at seeing things from different perspectives and appreciates patience, impartiality and thoughtful review. You learn most easily in a relatively controlled context, focusing on theory, systematic analysis and case studies. You rarely get anything out of unstructured “exploratory learning” such as simulation exercises.
2.5.7. Active experimentation
If you learn best through active experimentation, you focus on using logic, ideas and concepts, and prefer thinking to sensing. In problem-solving you generally act on theories rather than rely on creativity. You appreciate precision, systematic planning and careful and disciplined analysis. In a training situation, you learn most easily through project work, homework or group discussions. You dislike passive learning situations such as lectures. A focus on active participation means that problem-solving tasks and games are good for this type of student. The “trial and error” approach is just right, as it allows you to try things out in an active way, which you appreciate.
2.5.8. Learning – a conflict-ridden process
When attempting to absorb new knowledge effectively, it is good to use all four steps of the Kolb learning model. However, it is often difficult to use all the steps in one learning situation, because learning is a conflictual process. New knowledge, new skills and new attitudes are acquired by confrontation between different ways of dealing with new impressions. Is it, for example, possible to act and reflect at the same time? Is it possible to be practical while still being theoretical?
These different ways of acting are apparently diametrically opposed. Learning simply requires abilities that are opposites. Therefore, we must continually choose which mode of learning we want to focus on in each specific learning situation. These choices mean conflict between opposite poles. How conflicts are resolved will determine the level of our learning. If such conflicts as resolved by the suppression of one pole and/or domination of others, learning tends to specialise around that pole.
2.5.9. Comprehension and insight
The Learning Model has its origins in the practical experience of an individual. Kolb adopts two different ways of understanding – or perceiving – the experiences pf our lives. In the model, we find comprehension (apprehension) at one end of the perceptions dimension and understanding (comprehension) at the other.
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STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
Comprehension: A concrete experience from the surroundings via our senses; a direct and tangible tactile experience.
Insight: A comprehension which is about an abstract understanding of something; a conceptual and symbolic interpretation.
Comprehension is a more emotive way to bring in the outside world. There is a stream of impressions that we are not always aware of. The impressions are rarely constant, but rather volatile. To bring order into this flow of emotional impressions, we use the idea through insight. Otherwise, we would get stuck in an endless stream of unpredictable impression. Through comprehension we can communicate and put words to our experience as it is an active alert to new impressions.
If you leave a room, our understanding through comprehension of the situation is that the room fades away, to be replaced by new impressions. My understanding through insight gives me, by contrast, a model of the situation which it is possible to communicate to others. By strengthening this ability, we perceive that event B follows event A, but nothing gives the impression that event A causes event B. This assessment of cause and effect is instead the realisation of the two events. These two ways of taking in the reality we live in are diametrically opposed to each other.
2.5.10. Intention and extension
The second fundamental dimension, conversion, is the learning that occurs when the individual performs actions based on the experience he/she learned through the perceptions dimension. There are two ways to transform what one understands by experience. In the model, we find the intent at one end of the degradation dimension and extension at the other.
Intention: An internally directed action; internal reflection.
Extension: The externally directed action, which has a social or physical impact on the environment.
The conversion dimension is perhaps best described in Carl Jung’s psychological personality theory. Carl Jung developed a typology based on the observation that humans tend to exhibit different types of settings; introversion (inward direction) and extraversion (outward direction). Jung also described human behaviour based on a combination of four types of psychological functioning: thought/feelings and intuition/sensation.
Jung’s typology model tries to find connections and differences between how we perceive something and how we then evaluate and interpret what we have perceived: something that has a great influence on our behaviour and can give rise to misunderstandings and conflicts between people.
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STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
2.5.11. Learning style
When perceptions and the transformation dimension intersect – as in the model – you get the four more complex learning styles: activist (accomodator), the reflective (divergent), pragmatist (convergent) and theorist (assimilator).
Theorist
This learning style perceives an experience by understanding and transforms it by intention. The focus of the model lies in the region between reflection and analysis, in combination with abstract concepts and conceptual models.
Theorists prefer learning that combines abstract thought with reflective observation. He/she wants to know how things relate to each other and is good at creating theoretical models and abstract concepts. When it comes to learning, theorists prefer a case study, reading, thinking and reasoning on their own.
In the workplace you will find theorists, often in areas such as research and planning, working hard to collect data and then do analysis. This learning style is characterised in terms of the result – basic science and mathematics rather than applied science.
Pragmatist
The pragmatic learning style perceives experience by understanding and transforms it by extension. In the model, this means an emphasis on the abstraction of concepts and active challenging of them.
The pragmatist combines abstract thinking with active experimentation and asks, “How can I apply this knowledge in practice?” His/her greatest strength is the practical application of an idea, and pragmatists often prefer to deal with things rather than people. A pragmatist likes to have narrow technical interests, and often chooses to specialise in areas such as physical science.
When it comes to learning, they prefer a teacher who works as a coach, they appreciate activities that require skill and they like to manage their own learning independently. Pragmatists tend to be found in the technical professions where the focus is on problem-solving.
Activist
This learning style perceives experience through the comprehension and converts it by extension. The focus of the model lies between concrete experience and experimental confirmation.
The activist combines concrete experience and active experimentation. This learning style is focused on doing things. Activists carry out planned tasks and involve themselves happily in new experiences. They deal, take risks and look for
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opportunities. Their way of solving problems is often based on an intuitive ‘trial and error’ method. They rely happily on others providing facts and information, rather than using their own analytical skills. An activist often works with management, marketing and sales, and socialises easily with other people. Sometimes the tendency, however, is for him/her to be seen as impatient and pushy.
The reflective
This learning style perceives an experience through comprehension and converts it by intention. The focus of the model lies in the area between concrete experience and observational reflection.
The reflective learning style uses reflective observation and concrete experience in learning. This type of person seems to think about a topic. The ideal learning situation includes lectures, with plenty of time to think through what has been said, and a teacher who is an expert on the subject. The reflective’s strength lies in his/her creativity and imagination, and the ability to see things from many different perspectives. They are generally interested in people and emotional elements. People with this learning style often work as consultants, experts in organisational development or as human resource managers. They have broad cultural interests and often humanistic backgrounds.
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3. THE FRAMEWORK FOR DRIVING IC WITHIN A CONSULTANCY COMPANY
3.1. The process
The process I have evolved over time is based upon fundamental organisational aspects such as culture, leadership, values and beliefs, and is linked to visionary thinking and executing (see chapter 4, Execution). The first step aims at capturing and documenting tacit and explicit knowledge within entities by motivating, leading by example and rewarding. The entities are the smallest meaningful pieces of information stored and accessed through an IT System. The KPI for this step is typically the number of KPIs necessary to get a critical mass to work with. The second step is to systematically share tacit and explicit knowledge by deploying superior infrastructural initiatives, and the typical KPI is the number of accessed entities that indicate activities. The diffusion is about creating knowledge pull and push within the organisation using the shared knowledge. It is often measured by the number of entities used. To be effective, it is important that there are transfer mechanisms in place, like systems and a proactive culture, ultimately with osmosis characteristics1. The refinement part is constant improvements and alignments, and can be judged and measured by the number of improved entities. The generation step is ultimately the synthesis process, where meta-knowledge and meta-structures are developed and implemented within the firm's DNA, deploying the creation of capabilities needed at the present time and for future alignment of strategic initiatives. Typically, it is measured by the number of new kinds of entities produced.
1 ‘Osmosis is the movement of solvent molecules through a selectively permeable membrane into a region of higher solute concentration, aiming to equalise the solute concentrations on the two sides. It may also be used to describe a physical process in which any solvent moves, without input of energy, across a semipermeable membrane (permeable to the solvent, but not the solute) separating two solutions of different concentrations. Although osmosis does not create energy, it does release kinetic energy and can be made to do work, but is a passive process, like diffusion.’ (Wikipedia, 2011b)
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STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
Figure 4 Penker’s Structural Capital Process
3.2. The model
The basic model for explaining the structural capital synthesis process is shown inFigure 5.
Figure 5 Penker’s Structural Capital Synthesis Meta Model
The common entities are typically Best Practices, Templates, Methods and Processes, all of them transferring explicit knowledge to explicit knowledge (see
20
Capturing
Capturing and documenting tacit and explicit knowledge within entities by motivating, leading by example and rewarding KPI: Number of entities
Sharing
Systematically share tacit and explicit knowledge by deploying superior infrastructural initiatives KPI: Number of accessed entities
Diffuse
Create knowledge pull and push within the organisation using the shared knowledge KPI: Number of used entities
Refine
Constant improvements and alignments KPI: Number of improved entities
Generat
e
The synthesis process where meta-knowledge and meta-structures are developed and implemented within the firm’s DNA KPI: Number of new kinds of entities
The Structural
Capital Synthesis
Current Projects
Cases (Specific)
Common Knowlede (Generic)
STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
also Figure 1). The Case entities are Case Stories and Project Documentation; these are the transmission mechanisms of tacit knowledge to explicit knowledge. Current Projects helps to understand and transfer tacit knowledge to explicit and tacit knowledge.
Moreover, user-driven ranking of documentation, comments and blog posts, as well as configuration management, facilitates the synthesis process in the same sense as open innovation challengeing existing thinking.
The model is also in line with Professor David A. Kolb’s model for experiential learning, a worldwide de facto standard for adult learning. Kolb’s phases of Experience, Reflection, Generalisation and Experimentation are all covered in line with Kolb’s theories of iterative and holistic learning (see 2.5).
3.3. Quality assurance
As with all processes and models, there is a need for an integrated quality assurance system. Figure 6 shows a Quality Assurance Model for an integrated and holistic approach to structural capital. The matrix is populated with examples of what to look for, as this is situational.
Process People Technology Information
Quality Capture, diffusion, refinement and
creation of skills and knowledge through a well-defined process
Keep the company culture aligned with
the vision
Project audits
Dedicated sponsors
Frequent coaching
Linkage to reward system
Involvement
Accessibility
Usability
Security
Completeness
Customised
Ability to capture and transfer tacit
knowledge
Speed The right number of entities at the right
time
Support from the
operation
Updated and relevant content
Automated delivery and customisation of tools
The right number of entities at the
right time
Dependability
Well-defined onboarding process
of the new
Commitments from
consultants and
management
Suppliers and external technical consultants
Potential problems with
intellectual rights
Flexibility How iterative and incremental is the process without
losing transparency and simplicity?
Potential discipline
issues
Distance learning for explicit knowledge
transfer, coaching and training for tacit
knowledge
Export possibilities of documents,
flexible ways of consuming information
Cost Repeatable and continuous processes
keep costs down
Balance between
return and cost, short
Proprietary system might be tempting but is also cost-inefficient,
while standard systems
What information to enter, and why
to enter it, are
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STRUCTURE AND MODEL FOR HOW TO BUILD IC IN A MANAGEMENT CONSULTING FIRM
term and long term
might be cost-efficient from an operational perspective but less
efficient from a knowledge-sharing
perspective
critical questions
Figure 6 A Quality Assurance Model for an integrated and holistic approach to structural capital. The matrix is populated with examples of what to look for, as this is situational.
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4. EXECUTION
4.1. Set the vision
It is fundamental to set and outline the vision of the strategic initiative to capture, share, diffuse, refine and generate new knowledge within an organisation. There will be contradictory forces, dilemmas and misalignments between functional strategies, lack of system support and fuzzy reward systems, as well as potential breaks in the psychological contract between the firm and the employees as a result. Introducing systematic work with intellectual capital demands active leadership, execution ability and an enrolled organisation. If or when an organisation is not fully committed, at least the key player has to be; otherwise it will not succeed, and the vision of the work is imperative. In my experience, typically visions like being thought leader, working less but charging more, or publishing the ultimate article or book, serve as potential foundations for setting a vision of the initiative. However, having a clear financial purpose but a lack of vision is not good enough. I have seen many examples where top management wanted to tap the knowledge workers and secure their assets (financial/legal perspective) but did not bother to enrol the people, and, not surprisingly, in all cases this ended up in a mess. There must be a rationale for the knowledge worker; something in line with their agenda. This is also the reason to align the five contracts between the knowledge works and the firm.
As building and proving IC within a consultancy firm takes at least 3–5 years of hard work, it is crucial with low-hanging fruit: typically, having all internal material collected, such as processes, compliant rules, templates, common link lists, contact data, CRM system, project management, workflow support and configuration management, as well as ranking list and/or ‘Like’ functions for the most appreciated stuff. In addition, internal blogs and monthly updates, as well as internal celebrations, are potential tools.
4.2. Process and KPIs
Measuring the leading indicators – the key performance indicators – is necessary, as the process cannot be driven simply by focusing on output as it is too complex and abstract. In the process, described in chapter 3.1, KPIs are suggested. A performance management system is needed as well as a culture of measuring, coaching and improving the set goals every single day. Goals should be personal and all consultants should have clear goals, both in their delivery as well as in their own sales, and also when it comes to building IC. Linking the fulfilment of IC goals to career steps and remuneration, as well as creating a culture of appreciating and telling stories and building myths about the top contributors, is helpful. Both intrinsic and extrinsic rewards, and a clear and mutual reward contract according to Mullins (2006), need to be in place.
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4.3. Building the capability: talent management
The firm’s capability and external driving forces, both micro and macro, are the echo system of a firm. By developing its capabilities, linearly and disruptively, a firm can respond to opportunities and threats. The capability of a PSF is basically the human capital, but the lever is the structural capital – organisational and relational. More and more practitioners and academics have come to the conclusion that competitive advantages are not sustainable, but rather volatile and dependent upon both the exiting capabilities and also what can be called meta-capabilities. Meta-capabilities are the capabilities that form the framework within which capabilities are created, destroyed and formed into new combinations in response to opportunities or threats. To be able to build the capabilities, and especially the meta-capabilities, the human capital needs to be aligned with the strategy of the firm, and that is the link to talent management.
4.3.1. Employer branding and on-boarding
An extensive structural capital means that you, as an individual, can gain skills faster, make more money as a consultant and also climb upwards in the pyramid of Maslow. This is the way in which structural capital is essential in attracting talent, and a much cheaper way than using head-hunters and advertising. When a talent is brought onboard, my experience is that you have one week to win that soul to be a crusader of structural capital. If this does not happen now, it might take years—if it happens at all. This has to do with group dynamics, as there will always be persons within the organisation who are not fully committed, and they will try to enrol all new people to gain their support. But this also works in the opposite way: if all new people become crusaders, old structures and behaviour will be challenged and finally rejected.
4.3.2. Learning: individual and collective
The learning process within a PSF needs to be structured around the following dimensions:
Moreover, to secure efficiency and, on a deeper level, generate insights and eventually meta-knowledge, application of the David A. Kolb model is recommended. See chapter 2.5, the general theory section about learning for professionals.
4.3.3. Career paths and reward systems
The career path, from being a talent on the market all the way to director roles and partnership and potentially leaving the company, must be aligned with the
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overall strategy, including how to build capabilities and meta-capabilities, driven by demand and supply as well as threats and opportunities. As mentioned earlier, IC is one of the most important intrinsic motivation factors in attracting and retaining talents, and one of the most important extrinsic motivation factors in developing talents. However, it is also a proof of excellence, a belonging factor, as well as something that cannot easily be copied. This also makes it worth linking to alumni, as they will be reminded of the internal operational excellence and be potential ambassadors, as well as clients wanting and needing to use the IC of the firm.
The reward systems must be aligned with both extrinsic and intrinsic rewards and, as stated earlier, be transparent and understandable as well as being linked to measurable KPIs of importance. All knowledge works, as well as all people, shall have personal goal plans aligned and handshake access to the nearest superior.
4.3.4. Leadership and culture
The leadership must, as stated earlier, be prestige-less and encouraging, and at the same time trustworthy and focused on what drives the long-term value of the firm: admitting fault, finding new ways, never being satisfied and always wanting and demanding superior internal and external deliveries.
4.4. Tools
To get short-term and long-term wins, it is important that all people within the organisation get something out of the system every day. Therefore, it is advised not to store only completed projects or packaged offers, as these will be of too little short-term value. Everything of importance must be there, as well as social functions such as ranking possibilities, top lists of used documents, recommendations, comments, blogs, presence functions, Google Analytics, Google Trends and Google Alerts, as well as adopted RSS flows for specific areas of interest. All these functions can be bought, relatively cheaply, through third party vendors and for most systems on the market, including SharePoint.
Based on the process and model, as well as the learning process of Kolb, there need to be three parts/aspects supported by the system in use:
Cases: Stored, possible to rank and comment upon. But they must be linked to the original project data, as this will heavily increase the tacit knowledge transfer as well as providing all learning types with a learning curve adapted to their individual style of learning. This is also how SharePoint is designed, and the intention of it from the beginning, even through many firms only use it as a static file server.
Current projects: A place with project management and/or workflow support. This is a way of interacting in an efficient way, but it also eases the process of documenting case stories with full details (internally, and externally with fewer
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details and after seeking the approval of the client). Moreover, it is absolutely vital to learn, use and generate new models on a deeper level. This is also fully supported within SharePoint.
Common knowledge: The common knowledge is the synthesis of cases, current projects and the transformation and diffusion processes within the firm. Therefore, it is vital to have a workplace where new standards and models are evolved and released – it can be closed workgroups that release and train the organisation in each release. However, it must be possible, and clear rules as to how to apply to such workgroups, as well as the ability to comment on the releases, contribute to driving the synthesis as well as the process of transferring tacit knowledge to explicit and/or tacit knowledge.
Integrity and Intellectual Property rights are handled within employment agreements and shareholder agreements as well as in associate agreements and, where appropriate, in NDAs. If there are issues with defence or industry secrets, exceptions can be made by limiting access; however, this is highly counterproductive, and I have made this mistake too many times. However, training and certification/assessments of all people with access is necessary to make sure all people understand the issues. Moreover, there are of course restricted areas of all IC systems, such as management and board minutes – and this has to be accepted and explained in the name of transparency in general.
4.5. Financing and ownership
A potential execution problem, one on the drawing-board at the outset, is how to finance the investments needed. Normally, investment in systems is easy to solve, even if there might be issues related to licence fees etc. However, there is an issue with the time needed to produce the structural capital and other IC, which is something that normally hinders the full implementation. There are several ways of handling this issue; below is a compilation of my experiences of what has worked for me (but of course everything is becoming more complex):
1. By charging a management fee or equivalent setup, it is possible to make the technical investment and have staff ready to support the organisation.
2. By having a very clear understanding in the company that everything that is created during the firm’s time, working as associate, partner and/or subcontractor or external advisor, is owned by the firm, and that all exceptions are written and approved by the board or management team due to special circumstances; this makes it easier but does not solve all problems. Still, it will take time to produce high quality material supporting the organisation. A way of solving this is that when a method, process or a concept is made for a specific client, the client is owned by the team or consultants that developed the material. This means that if someone else is involved with this client, the originator of the material will own that account and thereby secure return on the time and effort invested.
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However, if the concept, process or method is used somewhere else, there are regulations but in reality the originator will – most of the time – be invited as mentor or thought leader. This is also very much about leadership and cultural values. An example is if you develop a training programme for a training company; then the original inventors will own that account, meaning that if other people in the organisation want to give classes through that training company, it will be considered as sales, and sales provision paid to the originator (of course, depending on the firm’s setup of internal rules).
3. Always let the client pay for developing structural capital; integrate this in all pricing.
4. By linking carrier path, remuneration and bonuses to originators contributing. These can be linked to the suggested KPIs as well. This can be financed in the same way as the system, i.e. with a general management fee. Putting extra fees upon the usage of the system and content will only be counterproductive and is strongly recommended to avoid.
5. By employing younger and hungry talents who, as a part of their own learning process, capture, structure, refine and eventually generate structural capital. This can be built in as a part of an initiation ceremony. Hiring external resources to do this does not solve the problem, and will only be counterproductive in the long run. However, in certain cases, and initially, and after carful thinking, it might be a part of starting an IC project and getting the initial content. However, I have tried this several times and only succeeded once.
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4.6. Ten principles for successful implementation of structural capital within Professional Service Firms
These ten principles are generic for PSF, based on my experience and the academic literature on the topic, and are also my recommendation to be applied.
4.6.1. Principles #1 The structural capital is the proof and the means
Structural Capital has two sides, like a coin. On one hand, it is a means to be more productive, but on the other hand, it is a proof of internal as well as external excellence. This perspective helps in the process of introducing, executing and developing Intellectual Capital of a firm. It can be compared with three new ‘P’ in the formal 4P model extended to 7Ps. The three least ‘P’s of the new model are:
Physical proof, the Process and the People – all of them central concepts within the domain of Intellectual Capital.
4.6.2. Principles #2 It is not easy to copy being the leader
By being open-minded and transparent, always challenging and developing, by refinement as well as destruction, it will be almost impossible to copy. Concepts and even capabilities can be copied, but meta-capabilities and meta-knowledge are very hard to copy. This way, a sustainable competitive advantage, being able to dynamically adjust the capabilities and value offers creating temporarily competitive advantages, can be reached.
4.6.3. Principles #3 Include, not exclude
By including internally and externally, the organisation can nurture and create long-term loyalty. This is the foundation for leadership and culture of a PSF, and the very prerequisite of long-term success. However, short-term, it might even be destructive, but to win the war you need to win more than one battle, and one might actually lose one to reach a more important goal.
By applying perceived and transparent total reward systems, job design, job rotation, clear career paths (including alumni network) and an overall vision that’s strong enough to enrol and motivate, you will also succeed in getting a working IC in place.
4.6.5. Principles #5 Clients shall pay for the lunch
Remember, clients always pay the bill in consulting companies. By taking advantage of this thinking, it will also be easier to find fair remuneration and reward models for creating and working with short-term and long-term sustainable IC.
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4.6.6. Principles #6 The team first
Create a culture of putting the team and the firm first, but do it on commercial principles. If people do not deliver, this must be addressed, as everybody is dependent upon it. Everybody must have a chance, but being a consultant and a team player is a hard combination, and not natural for everyone.
4.6.7. Principles #7 Documenting the general, relating to the specific
By thinking and acting specifically in projects, but documenting generally, you increase the possibility of creating a legacy, applicable for a long time. But remember: keep a record of the details, because they explain the masterpiece!
4.6.8. Principles #8 What is not possible to measure shall not be done
Always link you activities to defined leading indicators: this is more important than focusing on the overall goal, as it is very hard to link back to. Divide the leading indicators and goals and distribute them, making the knowledge work responsible and committed to them, for the success of the firm as well as personal satisfaction.
4.6.9. Principles #9 Go for low-hanging fruits
Always make sure that everybody gets a small victory now and then, as well as making things easier on daily basis. This will ensure the perseverance needed to achieve success.
4.6.10. Principles #10 Tell stories
Telling stories, creating sagas, myths and legends, will explain and engage people in the adventure of building a world-class PSF based on a strong and sustainable foundation.
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APPENDIX A: ELEVEN COMMON EXCUSES NOT TO WORK WITH STRUCTURAL CAPITAL FROM AN EMPLOYEE PERSPECTIVE
1. I become interchangeable.On the contrary – you show everyone what you know, what you can do and position yourself.That is the kind of person we want.
2. I become a machine.No, you get a chance to create value instead of reinventing the wheel.
3. I have no time.You don’t have time to be structured?
4. Shouldn’t I care about tomorrow’s delivery and prioritise the structural capital?Yes, if you have to choose. You can win the battle, but lose the war – which is better?
5. Other people will steal my ideas.They will steal them either way.
6. I have nothing to contribute.Then you should not work for a knowledge intensive company.
7. Everyone already knows my areas of expertise; they can just ask me!All 300 co-workers know exactly what you can do? OK, great; can they call and ask you at 11pm as well?
8. I don’t want other people or departments within our company to disturb or recruit my employees, I prefer no-one to know what they can do.Then you should question your leadership. Try to empower people instead; they will be loyal to you.
9. I have to process; I can’t just write it down on command.Good, but it is more effective if you do it together with other people.
10. I am a poor writer.OK, thanks for telling us – then we will help you. Schedule an appointment with a journalist or a copywriter.
11. But my work tasks are different from person X’s; he/she can contribute more to thestructural capital and take advantage of it in a better way.Everyone can contribute and take advantage of it, and quality is more important than quantity.
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5. REFERENCES
Edvinsson, L. (1997). Intellectual Capital: Realizing Your Company's True
Value by Finding Its Hidden Brainpower. HarperBusiness.
Group, H. (2009 йил 6-January). What Makes the Most Admired
Companies Great: Reward Program Effectiveness. From
