Expanded Intellectual Capital and Knowledge

Expanded Intellectual Capital and Knowledge Management (KM) in the Broader Context The Hong Kong Polytechnic University October 24, 2016

Karl M. Wiig Knowledge Research Institute, Inc. Arlington, TX 76016-3517 phone: (817) 572-6254 fax: (817) 478-1048 e-mail: [email protected] –– website: www.krii.com

IC & KM in Broader Context 2016/ 1

Copyright © 2016 Knowledge Research Institute, Inc.

Today’s Agenda ‘KM’ and ‘ICM’ from Broader Perspectives: 1.  The Societal and Local Contexts of IC and Knowledge 2.  Effective ICM and KM Requires Deep Understanding 3.  The Expanded 4 Category Intellectual Capital Framework 4.  The Empirical ‘Economic Complexity Index’ (ECI) 5.  Six National Goals – and IC and ECI 6.  KM and Intellectual Capital Management 7.  Concluding Remarks



“The Broader Context” Strong Intellectual Capital Is Needed Everywhere



The Dual Worlds in Which We Live We must always be aware of the competing perspectives of Society and Organizations and that different KnowHow is required for effective navigation Organizations – Society – EIC

Motivated by Peter Drucker 1993 IC & KM in Broader Context 2016/ 4


Dealing with the Entity’s Dual Nature Ø  To Perform Well, Healthy Entities Build and Distribute the Best Possible Intellectual Capital Ø  They Balance Their Organizations’ Social Dimensions “Objective World” and “Subjective World” Ø  They Match Organizational Structure, Laws & Regulations, Technology, Operational Practices, Etc. with People, Culture, and Social Needs Ø  They Pursue People-Focused ‘KM’ – Approaches, Technology, and Social and Cognitive Sciences



Three Kinds of Entities



Some Entity Functions

Provides: Laws & enforcement to secure just and equal business rules


Provides rights to: “Life, Liberty and the pursuit of Happiness”


Six Levels of ICM (KM) Focus



Intellectual Capital Expanded to Account for Aspects Such As •  Entity Driving Forces •  Sociocultural Assets •  Embedded Cognitive Products •  (Includes Knowledge and KnowHow)



Intellectual Capital Is Created by People All Intellectual Capital assets are products of human cognition Examples: •  Nonconscious principles, beliefs, judgments, ideas, and attitudes; •  People’s mental constructs of KnowHow/ knowledge, information, and facts; •  Mental models of social contacts and relations; •  Concepts and Conclusions documented in scientific reports or in laws and regulations •  Capabilities (KnowHow) built into artifacts like intelligent systems. IC & KM in Broader Context 2016/ 10


Our Most Precious Resource! Remember: Cognition – Thinking and Reasoning – Is Complex – But Unfortunately Not Very Reliable! Our Conscious Mind (“S2”) Is Only Partially in Control! Most Cognition Happens Subconsciously (“S1”)! Perspectives, Judgments, Ideas Frame All Decision-Making and Are Generated and Kept Tacitly by Our S1 Subconscious! “S1” and “S2” refer to TACIT (System 1) and EXPLICIT (System 2) Cognitive Activities (See Kahneman 2011) IC & KM in Broader Context 2016/ 11


Example: Intellectual Capital in Ball Point Pens

and Requires Many CAPABILITES



Growth of Intellectual Capital over Time Enterprises strive to acquire and u2lize parts of the vast wealth of the World’s cumulated IC


Na#ons mo#vate development of IC to achieve goals and to strengthen and secure their posi2ons in the world


The Expanded Four Domain Intellectual Capital Framework Some Enterprise Examples



The Expanded Intellectual Capital The Expanded Intellectual Capital Has Four Categories: 1.  Mindset Capital: The fundamental motivational and driving force of every entity; 2.  Human Capital: People’s knowhow, availabilities, and attitudes that are needed to create, act, do, and make things; 3.  Sociocultural Capital: Private and public cultural norms for behaviors, communication pathways, and practices for effective performance; 4.  Structural Capital: ’Formalized’ products of intelligent activities for preservation and continued effective utilization.



The Four Domain IC Framework



Mindset Capital in Enterprises Mindset Capital shapes the entity’s orientation, purpose,

preferences, and behaviors – by providing goals, incentives, ideas, reasons, and ethical and philosophical directions. Beliefs in the ethical principles and goals of the enterprise. Visions for the enterprise’s future goals and direction. Unspoken and accepted practices of promoting personnel. Generally accepted approach for how to broaden enterprise’s product space. Employees’ tacit understanding of company policies. Generally employee opinions of inadequate product quality. Managers’ automatic and quick decision making habits. General expectations for cooperation and collaboration Willing to consider new and different ideas and practices. Implicit management support of informal ‘black projects.’ IC & KM in Broader Context 2016/ 17


Human Capital in Enterprises Human Capital shapes and enables purposeful and effective

intelligent behaviors – and maximizes the value of ‘thinking for a living’ Employees’ ‘productive knowledge’ (knowhow). Sufficiency of mission-critical experts (specialists). Educational attainments of employees at every level. Spread and averages of broad world knowledge. Age and skill profiles of employees in different departments. Profient employees available for new company initiatives. Degrees to which employees agree with company’s culture. Employee support of company’s targets and product plans. Employee fitness supported by company healthcare services. Adequate wages to support employee Quality-of-Life. IC & KM in Broader Context 2016/ 18


Sociocultural Capital in Enterprises Sociocultural Capital provides the realm where people, organizations, and societies pursue hopes, aspirations, goals, ideas, plans, and work. It promotes civil behavior and collaboration, and provides pathways for creation of new ideas, and minimizes transaction costs

Staff promotion based on merits and capabilities – not seniority. Wide internal collaboration – strict limits on sharing with outsiders. Multidiscipline and multi-departmental taskforces. Communities of Practice (CoP) and special interest groups. Collaborations with suppliers to design better products. Sharing in joint industry R&D partnerships (EPRI & ASAA). Networking with telecommuting and travelling coworkers. Blog discussion forums to improve proposed initiatives. Long-term supplier agreements to provide specific products. Agreements between auto manufacturers and dealers. IC & KM in Broader Context 2016/ 19


Structural Capital in Enterprises Structural Capital consists of explicit, implicit, or embedded products of cognitive activities that may be captured, explicated, institutionalized, or generated by ‘people-created means.’ Concepts in corporation documents, bylaws, and related items. Documented definitions of responsibilities between departments. Patents and proprietary products; Copyrighted works. Engineering, business analysis, and initiative and project plans. Customer relations management (CRM) protocols. Documented Best Practices; Supplier collaboration guidelines. ICT systems configurations and operational protocols. Internal training programs and Corporate University Contents. Deep Learning Neural Networks. Historic financial, customer, supplier, and employee records. Product design and manufacturing information. IC & KM in Broader Context 2016/ 20


Economic Complexity Determines Entity Success and Is Built on Intellectual Capital



Economic Complexity Index ECI* – A holistic and empirical measure of production characteristics of the economic systems of 132 countries by calculating the Complexity of each country’s economy specified by: u  Country Product Diversity – Range of products made by a given country How diverse is our industry base? u  Product Ubiquity – Number of countries making each product How common or exclusive are our products? u  Product Capabilities – Range of capabilities required to make each product Which areas of expertise are required for each product? u  Product Adjacency – The ‘capability closeness’ of products made in a country How related are the capabilities required for our products? u  Country Capabilities – Capabilities a country needs to make its products Which products can we produce given our capabilities? * ECI (Economic Complexity Index) is based on export statistics from 132 countries for 775 product classes – and estimates 200 capabilities IC & KM in Broader Context 2016/ 22


Economic Complexity Index Is Empirical

132 Countries 775 Product Classes 200 Capability Classes

From Countries and their Products [M] cp impute by recursion: -  Product Diversity -  Product Ubiquity -  Product Capability Requirements -  Product Adjacency -  Country Capabilities From Hidalgo & Hausman 2009 IC & KM in Broader Context 2016/ 23


Economic Complexity Explained “The economic complexity index (ECI) is a novel measure that reflects the diversity and ubiquity of a country’s exports. The index considers the number of products a country exports with revealed comparative advantage and how many other countries in the world export such goods. If a country exports a high number of goods and few other countries export these products, then its economy is diversified (a wide range of exports products) and sophisticated (only a few other countries are able to export these goods). Thus, the measure tries to capture not a specific aspect of the economy, but rather its overall sophistication.” From: Gnutzmann-Mkrtchyan (2016) The Economic Complexity of Transition Economies.



Economic Complexity as Indicator of Performance



Six National Goals The Breadth of National Performance and Concerns



Six National Goals 1.  Secure National Independence and Sovereignty ––

Ensure strength to preserve the na/on’s autonomy and self-sufficiency.

2.  Provide Security, Stability, and Safety ––

Support orderly internal and interna/onal rela/ons and condi/ons.

3.  Deliver Economic Progress and Performance –– Promote industrial and business priori/es, ini/a/ves, and ac/ons.

4.  Pursue Political Progress and Performance ––

Encourage agreements between Government policies and public’s priori/es.

5.  Encourage Sociocultural Progress and Performance –– Facilitate public priori/es, ini/a/ves, and ac/ons – including acceptable quality-of-life and well-being for people. (Prosperity Index Is Proxy)

6.  Build Capabilities to Support National Objectives ––

Create and maintain competences – par/cularly Intelligent Capital – to fulfill na/onal priori/es /mely and reliably. (ECI Is Proxy)



How Can We Think About National Strength? National Strength results from the degree to which the six national goals are attained, and a Nation’s strength depends upon the level and quality of its Intellectual Capital



National Strength and Intellectual Capital

National Strength Is Greater than Intellectual Capital Predicts

National Strength Is Less than Intellectual Capital Predicts



Prosperity and IC in 2014

Prosperity Is Greater than Intellectual Capital Predicts

Prosperity Is Less than Intellectual Capital Predicts



Economic Complexity and IC in 2014

Economic Complexity Is Greater than Intellectual Capital Predicts

Economic Complexity Is Less than Intellectual Capital Predicts



National Strength and ECI 119 Nations

National Strength Is Greater than ECI Predicts

National Strength Is Less than ECI Predicts



Managing Intellectual Capital Requires Strategic and Broad Societal Knowledge Management



Why Manage Intellectual Capital? Build Society’s, Enterprise’s, and People’s Capabilities to Attain Desired Performance KM (ICM) Is about Increasing Competences: to Better Observe – Imagine – Think – Plan – Decide – Deliver – Monitor – Assess – and ‘Rethink’ in Order to Deal Effectively with

Constant Changes, Opportunities, and Challenges: Political – Economic – Sociocultural – Technical – Personal and Work Place Demands



Six Societally Important IC Elements



IC Requirements for Public Servants



Economic Complexity Traits in Strong Nations 1.  Effec#ve Educa#on for Every Popula2on Level and Func2on: - Kindergarten through High School (‘K-12’) for Everyone - Vocational Schools for Trade Specialists - Universities for Professionals - Industry ‘Universities’ and On-the-Job Training Programs - Programs for Infants (Including Prenatal Care) - MOOCs for Life-Long Learning (’LLL’)

2.  Focus on ‘STEAM’ (Science-Technology-Engineering-Arts*-Mathema2cs) 3.  Broad Internet Availability for Domes2c and Interna2onal Access 4.  Extensive Public and Industry Support of Diversified R&D 5.  ‘Complexity’ Clusters of Complimentary and Competent Scien2fic, Technical, and Business Enterprises 6.  Acceptable Quality-of-Life 7.  Low Level of Domes#c Discontent * Liberal Arts IC & KM in Broader Context 2016/ 37




Some Educational Pathways in Society



Singapore’s Educational System



Today’s Journey in Retrospect 1.  We Need Different Capabilities in this Ever-Changing World 2.  National Strength Improves with Better IC (incl. Knowledge) 3.  The Empirically Calculated Economic Complexity Index (ECI) 4.  The Four Category Intellectual Capital Framework with Enterprise Related Examples 5.  The Six National Goals 6.  Selected Societal IC Examples 7.  Yes, We Need to Manage Broad Intellectual Capital! 8. 

What Can We Do?



Thank You!



Some References Drucker, Peter F. (1993). Post-Capitalist Society. New York: Harper Business. Gnutzmann-Mkrtchyan, Arevik (2016) The Economic Complexity of Transition Economies. Downloaded from: http://freepolicybriefs.org/2016/03/30/economic-complexity-transition-economies/ Hidalgo, Cesár A. (2015). Why Information Grows: The Evolution of Order, from Atoms to Economies. New York: Basic Books.* Hidalgo, Cesár A. & Hausman, Ricardo (2009). The building blocks of economic complexity. PNAS vol. 106 no 26 pp. 10570-10575 Hidalgo, Cesár A., B. Klinger, A.-L. Barabási, R. Hausmann. (2007). “The Product Space Conditions the Development of Nations.” 27 JULY 2007 VOL 317 SCIENCE. Downloaded from www.sciencemag.org Hausman, Ricardo, Hidalgo Cesár A. & al. (2013). The Atlas of Economic Complexity: Mapping Paths to Prosperity. Cambridge, MA: MIT Press. Kahneman, Daniel (2011). Thinking, Fast and Slow. New York: Macmillan. Wiig, Karl Martin (2004). People-Focused Knowledge Management: How Effective Decision Making leads to corporate success. Boston, MA: Elsevier.

* What is economic growth? And why, historically, has it occurred in only a few places? Previous efforts to answer these questions have focused on institutions, geography, finances, and psychology. But according to MIT’s ‘antidisciplinarian,’ César Hidalgo, understanding the nature of economic growth demands transcending the social sciences and including the natural sciences of information, networks, and complexity. To understand the growth of economies, Hidalgo argues, we first need to understand the growth of order – the reduction of information entropy.

