The stages of business management and the CICM approach

To incorporate the IC business cycle and stages into business management, the CI CM model adopts a functional classification of intellectual capital as the underlying IC model. Under the functional classification, the generic forms of IC (human, customer, and structural) are grouped in relation to their function in the business cycle, into three groups:

1.       Knowledge resources

2.       Innovation resources and processes

3.       Intellectual property

These groups are then managed, each according to its stage of development under three stages as follows. It is noted that though all forms of IC are managed under each of the management stages, as illustrated in Exhibit 4.1, each stage by its nature is predominantly focused on managing one particular form of IC.

 

INTELLECTUAL
CAPITAL/
STAGE OF	HUMAN	CUSTOMER	STRUCTURAL
DEVELOPMENT	CAPITAL	CAPITAL	CAPITAL
Knowledge	Tacit knowledge,	Experience,	IT databases,
management stage	experience,	knowledge, relations,	knowledge base, best
	brainpower, vision	networks	practices, culture
Innovation	Ideas, product	Ideas, product	Work systems,
management stage	concepts, skills	concepts, feedback, relationships	business processes
Intellectual property	Know-how,	Brand identity,	Patents, trademarks,
management stage	know-why	reputation, strategic	copyrights, trade
		alliances	secrets

EXHIBIT 4.1    The Types and Stages of IC under the CICM Model

 

The First Stage: Managing IC as Raw Knowledge Resources

At this stage, IC—whether human, customer, or structural capital—is still in its raw form and hence is used as a resource for production and operation. The best way to describe IC at this stage is to use the term knowledge resources. These knowledge resources comprise employees' brainpower—human capital, customers' experience and insight—customer capital, and the organization's information databases and knowledge stored in its routines and business prac­tices—structural capital. Managing IC at this stage of its business cycle is the management of the organization's knowledge resources in every form they come in, hence the stage of knowledge management. This stage is predominantly focused on the management of human capital since employees are the main carriers and processors of knowledge (see also about safe investments).

The Second Stage: Managing IC as Innovation Resources

At this stage the IC uncovered in the first stage is transformed through the organization's various business/production processes into applied knowledge, that is, a product, process, or solution that can be commercialized. Hence, the value of IC in the first stage is extracted and materialized at this stage. The best way to describe IC at this stage is as innovation resources. These innovation resources comprise ideas and product concepts generated and developed by employees—human capital; ideas and concepts generated through networking and contact with customers—customer capital; and business processes, work systems, and methods used to transform ideas into mar­ketable products—structural capital. Management of IC at this stage of its business cycle is the management of the innovation processes through the whole organization, hence the stage of inno­vation management. This stage is predominantly focused on the management of customer capi­tal since innovation in the knowledge economy is increasingly reliant on network-based innovation, as further explained in Chapter 7.

The Third Stage: Managing IC as Intellectual Property

At this stage, IC has reached its optimal level of materialized value. IC can then be defined in very precise terms, separated into identifiable items of intellectual material, and used as compet­itive and marketing tools. The best way to describe IC at this stage is intellectual property or intel­lectual assets. Intellectual property comprises know-how and information of defined commercial value, that is, trade secrets—human capital2; brand identity, personality, reputation, and emo­tional value3—customer value; and defined technologies, patents, software programs,4 copy­righted works and trademarks, trade dress, and logos that the organization owns—structural capital. Management of IC at this stage of its business cycle is the management of intellectual property (for business, not legal, purposes), hence the stage of intellectual property management. This stage is predominantly focused on the management of structural capital given that IP is owned by the organization.

The CICM model purports to manage all forms of IC at each stage of their business develop­ment, where each stage supports the next in the cycle by feeding back to where it started. As illustrated in Exhibit 4.2, knowledge management supports the innovation and IP management stages by supplying the raw knowledge resources, and is thus the platform of the CICM model. Both innovation and IP management stages produce more knowledge resources that are recycled back into the knowledge management stage, where they get circulated and reformulated as the basis of new knowledge that in turn proceeds to the other two stages and so on, as shown in Exhibit 4.2. The comprehensiveness of the CICM model lies in managing IC from A to Z at every stage of its development to ensure that value is created, extracted, and maximized in a systematic way.

Though these stages overlap and closely interact with each other, it is important that they be separated for management purposes. This is because the nature of IC at each stage is intrinsically different from the IC at the other stages, which requires a different management system, and should be managed to meet different objectives. Exhibit 4.3 shows the various management objectives and purposes for managing IC at each stage.

Each stage commands different management objectives, which in turn command the use of different rules, systems, practices, and tools. The different management objectives at each stage

 

			MANAGEMENT
CICM STAGE	IC GROUP	PURPOSE	OBJECTIVES
Knowledge	Raw	Value	Recognize and leverage the
management	knowledge	creation	knowledge resources required to
	resources		sustain the organization's processes
Innovation	Innovation	Value	Unleash and reconfigure innovation
management	processes	extraction	resources to create new ways of
	and		doing business and new
	resources		products faster
Intellectual	Intellectual	Value	Enable the use of intellectual
property	property	maximization	property to enhance the
management			organization's competitive positioning and revenue generation

EXHIBIT 4.3    Management Objectives and Purposes for CICM

 

provide a guide for the performance measures that can be used. At the first stage of knowledge management, the main purpose is the maintenance of a good flow of information and knowledge resources, to facilitate organizational learning and sustain everything that the organization does (i.e., value creation). This main purpose is translated into a set of management objectives, namely, determining the main knowledge resources required for the organization to meet its goals and facilitating knowledge sharing to leverage the organization's existing knowledge. Unlike investment at the other two stages, investment at this stage is long term with no direct financial outcomes. Nonetheless, performance measures can be developed to monitor the effect of knowl­edge management on learning, productivity, and turnover rates.

The stage of innovation management has the main purpose of extracting value from all the knowledge resources available to the organization by the use of innovation processes. The chal­lenge of managing IC at this stage, however, is how to manage the innovation resources, dis­persed in networks inside and outside the organization, to enable their effective reconfiguration to get to the market faster. Return on investment at this stage can be measured with more certainty as improvements relate to definite production processes, unlike knowledge management wherein the benefit permeates to everything that the organization does. When it comes to performance measures, both qualitative and quantitative metrics can be used (e.g., time to market, product suc­cess rate, and percentage of revenue from new products).

The purpose of the IP management stage is to maximize value to stakeholders by using the legally defined properties as competitive and marketing tools. This translates to management objectives that include the use of IP as a competitive weapon to block competition from entering or gaining a stronghold in a certain market segment, as a protective shield to secure the organi­zation's own competitive positioning efforts, and as a marketing tool to generate revenue. Per­formance measures here are easier to form as royalty streams provide ample evidence as to the effectiveness of managing IP. Other measures need to be developed as well to measure IP man­agement program effectiveness in enhancing the competitive positioning of the different business units by monitoring growth rates, for example.

But the CICM model does not only bring different practices, objectives, programs, and tools together in an understandable framework. It also presents a methodology that harmonizes and synchronizes between the different programs needed under the various stages to liberate and leverage the value of IC, and hence enhance business performance. Above all, it develops a new management approach. Here's how.