Developing and Applying Intellectual Capital is the Key to Creating Value

In our knowledge-based economy, effectively developing and applying intellectual capital is the key to creating value. One of the fundamental tenets of lean is the reduction of underutilized human potential. What exactly does this mean? Systems2win defines the underutilization of human potential elegantly:

Restricting employee's authority and responsibility to make routine decisions. Having highly paid staff do routine tasks that don't require their unique expertise. Not providing the business tools needed to perform and continuously improve each employee's assigned work. Not trusting your people to stop production to stop and fix a problem (jidoka). Not trusting your people to be responsible for the cleanliness, maintenance, and organization of their own work area. Not trusting people with a flat organization structure of largely self-directed teams. Not expecting (and measuring) every person to contribute to continuous improvement.

The intriguing concept in this statement is the inability to trust. This lack of trust speaks to the ecosystem of current organizational structures. Peter F. Drucker stated that the organization hierarchy in most organizations today developed as a result of World War II and the attempt to create efficiencies by structuring the firm like the military. While this organizational structure may have made sense 50 years ago, the command and control model is one which does not support the facilitation of human capital to better your organization. Through my research I would argue the military type structures in place today are ineffective in developing and applying intellectual capital and need to change.

Leveraging Knowledge

In my experience, about 80% of a company's knowledge is undocumented or unshared and thus lives in the tacit knowledge world while the remaining 20% of explicit knowledge lives in documents or procedures which in that are often ignored. Think about that ratio in terms of your organization. If you are only utilizing 20% of the knowledge of your employees, what is the opportunity cost to your firm for what you miss out of your intellectual capital? If 80% of your organization's capital resides in the knowledge of your workers, managers are hobbled in their ability to make decisions regarding how those assets are utilized.

CEO's are frequently asked "What is the most important asset to your organization?" The standard response is, "Our people." While this is often the general response, it is rarely true. When asked to further define why people are an organization’s most important asset, most managers will resort to primitive answers such as, "They make our products," or "Without them we can't do anything." While these responses are certainly correct, they are a subtle gauge of a lack of trust because they only refer to the physical output of the employee.

This line of thinking is not only broken, it's dangerous for the future of your organization. Regardless of your product or service, your greatest asset is your people; not in what they do but in what they know. Their intellectual capital (tacit knowledge) is something that can move you from being a good company to being a great company. With knowledge empowering people, your organization can develop products your competition simply can't given the same resources.

The failure to leverage employees’ knowledge creates the opposite result. We have seen companies falter when people retire from firms that have failed to create an environment of successful knowledge transfer.

Creating Transformation

This problem is not easy to tackle. How do you transform an organization with a culture that doesn't adequately value intellectual capital into one which lives off it? What components must be in place in order to facilitate this change? It starts with management. Once management truly supports an investment in intellectual capital, significant advances can be made by following a few recommendations. As with all change, these take time and effort but they can turn your organization into a world-class institution:

1. As executives, dedicate yourselves to supporting substantial efforts to prevent lost knowledge but culturally and physically.
2. Create a culture of lean which empowers knowledge workers. Empowerment is a book in itself but to create this environment you must create what Forrester calls HERO (highly empowered and resourceful operatives). Creating a process of improvement through value streaming and Kaizen where management recruits intellectual capital accepts the recommendations for change.
3. Emphasize teamwork over teams. Teams refer to small groups of people working together toward a common purpose. Teamwork refers to an environment in the larger organization that creates and sustains relationships of trust, support, respect, independence and collaboration. Creating highly empowered teams that work without titles can create the shift of culture to one that prizes intellectual capital.
4. Focus on knowledge capture and allowing knowledge transfer. Several methods can entice team members to transfer knowledge, including mentoring, paired teams, work shadowing and simulations.

Utilizing human potential is a complex topic. Although many organizations view capturing the remaining 80% of tacit knowledge as a lost cause, it is certainly worth the effort. In reality, most firms do little to try to capture and use their human potential. However, doing so can provide exponential returns and will enable your organization to achieve greater success with minimal additional resources. I encourage delving into some of the lean communities for more advice on how to utilize human potential within your organization.

Patrick Phillips and Jen Browne

Partnering with the Business

ALIGNING WITH BUSINESS HAS BECOME A KEY PRIORITY FOR MANY
In previous  research, we have identified how several companies are investing in business-focused messaging strategies at the corporate level — but the marketing of individual product and service offerings lag behind corporate ambitions. This disconnect can be symbolic of serious gaps within organizations: When corporate leaders move faster than the sales and marketing professionals, customers may be left with mixed messages. we believe that technology vendors need to do more to incorporate their business focus at all levels of their organization.

MARKETING STRATEGIES ARE THE MAIN TOOLS TO FOCUS ON THE BUSINESS CUSTOMER
We found it concerning that the most top-rated tactics of focusing on the business customer are all generally related to marketing and sales, while the lower-rated tactics relate to products, services, and evaluation metrics. While this could reflect the marketing focus of many of our direct partners, it also highlights a trend we see: For many technology companies, interest in business focus is largely perceived as a marketing tactic, rather than an area for complete strategic alignment. In this regard, companies that differentiate themselves are the ones stressing the importance of business alignment in their product development, strategy, marketing, and sales.
It's also noteworthy that use of metrics often ranks relatively low on this list of tactics. This highlights the fairly common difficulties that companies have when seeking to provide something as vague as business value, without having a fully developed understanding of what it means. Although we often hear from vendors that say that providing business value to their customers is best highlighted in the cost savings they provide, reduction of IT costs is a metric that is rooted in an IT-centric view of the world. Business leaders care about costs, but they also care about diverse factors such as improved customer satisfaction, levels of innovation, and time-to-market. This highlights an opportunity for vendors to get closer to their customers by identifying their success metrics and working with them to achieve those metrics.

LINE-OF-BUSINESS AND C-LEVEL EXECUTIVES ARE THE TARGET AUDIENCE
When we asked our customers about the business roles they are targeting, we found that line-of-business managers are being targeted as the primary business customer. Next in line were C-level executives such as chief executive officers (CEOs) and chief financial officers (CFOs), followed by chief marketing officers (CMOs) and individual contributors.
It's not surprising that line-of-business managers are the most popular target. They are much easier to access than C-level professionals and often have the budget authority to push technology decisions. Just as importantly, these are the stakeholders with the most immediate business technology needs. For vendors, this data point highlights a major opportunity: Business professionals are increasingly aware of the strategic value of technology, but their IT organizations are not meeting their needs. Vendors that want to improve their strategic relationship with their customers need to do more to identify and meet these needs, even if it means making fundamental changes in traditional marketing and sales channels.
The focus on CFOs is also interesting given the increasing alignment between IT and finance. As IT organizations face greater operational scrutiny, it's not uncommon to see CFOs making

Unfortunately, many technology companies don't know what they are up against when they say that they are going to target business customers with their technology solutions. Companies that have traditionally sold to the IT organization will find it extremely difficult to make the jump into selling to the business audience because the core needs of these audiences differ so significantly from those of a traditional IT buyer. Although we agree that tech firms need to carefully incorporate the needs of business professionals into their marketing and strategy, technology firms need to manage these efforts carefully, invest in the right areas, and be prepared to make their efforts part of a long-term endeavor. At a high level, companies should consider how they align in three areas other than marketing:
Strategic support. Targeting business customers’ needs to be part of a broader strategy that brings in the right people with the right business skills. Companies usually do no develop their base of C-level relationships overnight — they invested heavily in a partner-driven approach that is supported by robust thought leadership and fundamentally linked to the way they do business.
Product value proposition. Targeting a C-level executive may make sense but must be relevant to the stakeholder in question. We have identified ways to evaluate the needs of IT buyers, line-of-business buyers, and senior management. If you expect your technology solution to resonate with the business buyer, the core value proposition should be aligned with his or her needs.
Sales alignment. The effectiveness of a business focus in marketing efforts must also be supported by a robust sales strategy. Making a shift from an IT-focused sales approach to a business-focused sales approach does not happen overnight. The content used has to be compelling and relevant to a specific business need, greater emphasis must be placed on the business objectives achieved, and measurable objectives must be outlined. Just as important, the sales force needs to be sufficiently supported to cope with the added time and effort required to invest in business-level relationships.
These three areas should highlight the challenge that many companies will face as they try to transform their technology companies from IT-focused to business-focused. Despite the time and investment required, however, there is tremendous opportunity for companies that can do this well. As noted, business alignment is consistent with near-term and long-term market

Technical Debt is a Form of Waste

Technical debt. The term has been popular for a while and is used to refer to a lot of scenarios. It was originally coined by Ward Cunningham to help us recognize that quick and dirty coding sets us up for increased future development effort. It has expanded to include the operational support of code. In my experience, one of the most overlooked forms of technical debt is created when operational support requirements are excluded from the project life cycle.

In many companies, operational support is not considered part of the project life cycle. Operational and project work are often completely decoupled at the lower and middle levels of the IT department, only dovetailing because both divisions report to the CIO or VP of IT. However, this very component of the life cycle, operational support, can deliver the most value to the customer.

This disconnect is created when communication between IT and the rest of the business is limited. When the business defines objectives and timelines for a project with limited or no interaction with the operations team, the operations requirements that are needed to support various projects are presented in an abbreviated form or left out entirely. The project team might not even know that operations requirements exist until the code is almost ready to go live, if then.

I recently participated in an emotionally-charged meeting that was scheduled to review the root cause of the failure of a client-facing system. The project team was angry with the operations team for not supporting their code in a highly-available (HA) environment. The operations team was defensive, stating that they didn’t have the time or resources to address their backlog, including the HA environment.

The project team specified an HA environment in their runbook as part of their handoff to IT operations. The HA system was acknowledged by the operations team as a requirement to adequately support the live code, prioritized it and assigned the creation of an HA system to an operations resource. However, the HA system’s completion was not considered release-gating by the project team, so the project was declared complete as soon as the code was live.

The project team expected their live code to be considered part of the production system, with accompanying up-time SLAs. The IT operations group was working on the HA environment, but didn’t have dedicated resources on the project, so its completion was a long, drawn-out process. The same people working on HA were also doing regular maintenance tasks, working on systems for other projects, and putting out fires.

The key point of failure in this conflict was in not consciously determining the value of the various requirements in the project. It is important in this type of dispute for the business to determine where the customer value delivery exists. Most IT departments don’t consider customer value when negotiating this type of delivery. Without this determination, it is almost impossible to correctly determine where to focus resources.

Part of the miscommunication was created in the beginning of the project, when people from the operations team were not included in the project team. It was exacerbated when the code was permitted to launch without an HA environment. It really snowballed when the project team went on to the next project without fully delivering the value of the code in terms of the delivery life cycle. The operations team, with its own unique requirements, pushed code live without ensuring that the requirements were completed, and then repeated the pattern all over again.

After just a few project lifecycles, it becomes clear that the decoupling of IT operations requirements from business requirements within consecutive projects creates a backlog for IT operations that can’t be surmounted without drastic remediation efforts. Furthermore, this lack of oversight often reveals a lack of understanding of value delivery life cycles. When domains are permitted to hand their delivery over the fence to the next group they tend to value less quality over quantity.

Fortunately, this problem has a simple solution. It’s not easy, because it requires being realistic about how many projects your company can complete in a given amount of time. If you have are in the habit of ignoring IT operations requirements, you might be surprised at how much paying attention to them will slow your project completion rate.

You might have to adjust your understanding of the number of operations people you truly need to support your project work. You need to understand the value you’re creating for your customer is not realized until what you have developed is fully implemented and the customer is finding the value in it. You have done nothing relative to value delivery if you’re not ensuring the product you’re delivering is delivered in full.

In summary, pay attention to three key aspects to prevent a buildup of technical debt as a side-effect of project work:

1. Make operations requirements release-gating.
2. Don’t launch on temporary environments to get the product out.
3. Deliver your product to deliver value, not presence.Bring operations people into the project early and often in the life cycle. In fact, make them an integral part of the life cycle.

Projects are not complete unless the systems on which they live are complete and delivering value to the customer. Anything not providing value to the customer is considered waste. Be the change agent in your organization in halting the creation of technical debt.

Jen Browne and Patrick Phillips