Unlocking the Mystery of Value Creation and Maximization

All the IC models discussed in Chapter 2 stressed that value creation is not dependent on the strength of a particular form of IC but on the relationship between the various forms. Edvinsson goes as far as proposing that if one form is not strong enough, then that will impact the value cre­ation process and render the other forms, even if strong, less effective.10 Despite this insight, it is not clear exactly how the mismanagement of one form impacts the other, at which stage of value creation, and how this can be remedied. This vagueness further mystifies ICM to management, as it does not clarify what value is expected to be gleaned from IC management in the first place.

The CICM model explains exactly not only how value is created, but also how it is extracted and maximized through the various stages of CICM. It is important to see the stages of creation, extraction, and maximization of value as distinct rather than one and the same. The metaphor of a plant illustrates this distinction. Planting a seed and watering it until it blossoms to the first leaves is creating value. Through natural development the seed grew into a plant, because that is what it naturally does. Intervention was necessary only to provide the needed nutrition to facili­tate the growth of the plant, but it didn't make it happen. The role of intervention is merely to pro­vide the right environment.

That is exactly how intellectual resources, whether individual or organizational knowledge, should be managed, to create value from them. Providing the right environment and culture for employees to facilitate knowledge sharing, will eventually activate the natural process of knowl­edge and value creation. Nurturing knowledge workers with the required information and knowl­edge (how things were done in the past and how other people in the organization think it should be done) will only spur more leaves—or ideas. But having the most dynamic group of people with the most brilliant ideas is not sufficient.

The next level in the business cycle is value extraction. Now that you have the plant, how about taking these leaves out, processing them, and producing an ointment? The main enablers here are your imagination, creativity, research, intelligence, experimentation, development skills, and understanding of market needs.

What enables extraction of value from the leaves once they have sprung into life is the modus operandi of the business - the various processes that make things happen. The effectiveness of these processes in extracting value and creating something new for which there is considerable demand in the market will determine the success of the project. It was noted that it usually takes 3,000 ideas to come up with four development projects and one winning product. This means the processes used to collect the leaves, the eyes used to pick the right ones for further development, and the means by which these few will be tested are the processes that shape the end product. At this stage consideration should be given to the tastes and needs of the end user who will use the processed leaves and hence understanding customers' needs. This per se should be designed as one of the value extraction processes. But, again, it doesn't stop here. There is another step, maybe the most profitable: value maximization.

What if the same leaves can be developed further by the owner or someone else for veterinary applications? What if the same ointment can be sold through new distribution channels or by a partner to other market segments? A multitude of ifs can maximize the value I have extracted from the leaves. That's where another set of IC comes into play. First, I have some rights in the leaves, which I can offer for assignment or under license. Even if I have no legal right in the leaves, for some reason or another, I still have the lead in the market for discovering and extract­ing their value first. My process may be secret, limiting the competition's ability to catch up. That in itself is a privilege that I can use to maximize value. Then there are strategic alliances with dis­tributors, partners, and even competitors that I can negotiate to maximize my revenue generation opportunity. That's where IP (as business tools, not as legal rights) and relational/customer capi­tal (as networks, supply-distributor chains, strategic alliances) come into play (see also about safe investments).

Thus, different forms of IC come together to perform three main functions in the business cycle of any enterprise: creation, extraction, and maximization of value. Understanding that cycle and how each group fits in clarifies how each group should be developed, what to expect from such development, and hence how to set management objectives and measure results. This also enables spotting weaknesses and finding out the weakest link in the chain of the value maxi­mization process. If the immediate problem is in the raw knowledge resources, management should focus on knowledge management; if it is rather in getting to market, the focus should be directed to innovation management; and so on. Distinguishing among the three stages of the value maximization chain also enables management to take ICM to the operational level.