Organizations have been focused for far too long around the importance of financial capital. It determines and drives organizations destinies. We are caught in a constant focus upon our achieving a return on our (financial) capital as our measuring criteria. Organizations strive for improving their ROCE, RONA, IRR,  EVA and a host of other financial measures.

As Clayton Christensen has been arguing the agenda of organizations begins and ends with the “search for numbers”. I think there is a time for changing this, we need to search for the knowledge that makes-up eventually the numbers.

There has been a distant voice for some time putting forward the need to appreciate and value the other capitals sitting within organizations. Much of the discussions have been housed under the term “intellectual capital” which denotes the sum of knowledge made up and contributed by our human assets, our organizational structures and our relationships that are developed.

These are the ‘capitals’ that transform into economic value through organization action. It is the financial capital that simply finances this.

Financial capital dominates any discussions

Yet financial capital and all its associated aspects rules, no, it utterly dominates. It totally fails to tell us in numbers alone where and what creates the value, it simply reports it.

It is this financial capital through our profit and loss, our balance sheets hides the value, or spreads it out in ways no one really understands its make-up.

Certainly those attempting to judge an organization just have to rely on a ‘history of numbers’ and some ‘selective’ market view to make investment judgements.

Equally those often running our organizations have a restricted view of where their real capital lies, as they focus on the numbers and then work down.

Today,we are  in a rapidly changing world and we need to understand it differently

The reliance of financial capital being the absolute measure is being challenged thankfully. Our business world is facing considerable disruptions from the accepted past practices, performance has become more volatile, more dynamic, more reliant on understanding that knowledge is where the value lies.

“Business as usual” is thankfully in a steep but protracted decline, the necessity today is to be constantly evolving and learning and that comes from knowledge acquisition, assimilation and then transforming and exploiting this into new value. We need to find new models for evaluating our real value and capital stock.

These ‘absorptive capacities’ are where we need to manage our knowledge flows better to translate and direct our understanding of new, value creating capital. We need to report on these far more as they offer the ‘residing’ and new stock that gives us new innovation potential and fresh value.

Learning capital needs to emerge and dominate future discussions

We need to give increasing incentives for organizations to learn. We need to judge the quality of this learning, not listen to ‘bland’ statements often presented. We need to know where this knowledge is targeted in narrative, discussions, spillovers and interactions.

What is being exploited, what is being determined in the decision-making process to give greater confidence that our invested financial capital is “in good hands”.

Keeping reliant on just discussing the financials within organizations we know is not enough. We have to force better discussions on the make-up of the other capitals, as these are still poor, left to individual interpretation and variable and we need to change this.

We are increasing opening up

As organizations become more open (open innovation for instance) the strength of linkages, of knowledge exchange, the translation of these activities is becoming really valuable to understand and focus upon more.

Through many of our activities we actually ‘borrow’ and it is then the ‘dynamic linking’ that we bring into the process, gives up the increased potential of innovation. It is the ease of learning, the ability to acquire and apply knowledge that creates the potential for innovation.

How many organizations really articulate their knowledge capital in acquisition, assimilation and transformation? Do we know how ‘path dependent’ they are- are they lagging in the market, are they simply opportunistic, are they locked-in far too much in potential downside risks.

Do they suffer from cognitive failure, do they lack the appropriate competencies to meet the constant challenges occurring around them. How much of this can you really extract from cold, hard numbers? Not a great deal.

Recognizing where our true value resides

The real problem we have is the lack of appreciation of what makes up our value, the real underlying wealth creating value, the one that truly ‘generates’. The tangible part is easier to appreciate (plant, land, material etc.) but is becoming a significantly declining part of the total sum of value of our organizations- sometimes it is only making up 30 percent..

It is our difficulties of understanding the intangibles as it is a very challenging task. Yet this has huge implications on the ‘health’ of the organizations we continue to invest in. Most organizations resort to “inferring” the value. This needs to change. The value today is in the interactions between the different components that make up our intangibles, out intellectual capital.

We are in need to identify what ‘drives’ organizations and that is our knowledge stock

For gaining and sustaining real advantage, and showing why it has the potential for creating new wealth we need to understand our capital stock.

This needs to be far more forwards looking; it needs to be more open and more transparent and it needs to ‘flow through’ the organization to find the potential to find new value from innovation. The call is growing increasingly for a new valuation model.

Static knowledge where we view financial numbers, never take our knowledge beyond what we are reading, failing to connect it and advance it is just not good enough, we do need to understand the underlying dynamic capabilities that make-up the organization. We need to access, absorb and translate our knowledge stock, allow it to flow and be developed into greater value-adding stock and innovation outcomes.

The post Struggling with counting ALL the sums of our capital first appeared on Building Your Innovation & Ecosystem Intelligence.

There is a growing need for having some dynamic tensions within the organization’s system; these helps generate the better conditions for innovation to thrive. We are learning more on the better tools, techniques and approaches available for putting the learning tensions into our work, making them more dynamic, linked and increasingly relevant to the work to be done.

1). A common language is essential

Any dynamics in the system needs that ability to talk the same language, something that becomes common and embedded to support the routines and move quicker to the concepts and solutions, as others can ‘understand’ them as well. It is through working on the inner stories and appreciating the history, it is having an appreciation of events, good and bad, it is through local slogans, your jargon and dialogues that bring people together. The power of storytelling helps gain adoption and identification to those needs for working on a common cause.

2). Creating constant opportunities for conversations

So many organizations don’t work on the ongoing conversations, design workshops, road shows and dialogue sessions that give everyone linkage and growing identification. You begin to identify your sense of purpose and value contribution if there is a consistent diffusion of messages; these should be always lead from the top or moved up and down the organization to allow for these ongoing conversations.

3). Using the knowledge that resides

Organizations like to believe they are building domains of expertise but often they are actually building the silo’s to restrict the flow of knowledge. Knowing where the right functional expertise lies, the relevant skills, experiences or relevant insights ‘reside’ is increasingly important to throw open to all, to tap into, extract and contribute. This expertise can help with our daily routines by offering different thoughts, ideas and practices that may have a real impact on how you can change.

4). Wrapping up intelligence to give it real value and knowledge understanding

The bundling of intelligence is becoming critical. It needs to be increasingly shared across the organization at real time speed. As we look increasingly outside our organizations, our focal markets sensing and seizing the information and being able to connect it, to bundle it into knowledge that has potential application or relevance allows for absorptive capacities to really come to live. Those are able to learn to bring into the organization by accessing, anchoring and diffusing that external capacity for creating and exploiting new value.

5). Capturing and extracting tacit knowledge

Our ability to capture and access the tacit knowledge that resides in all our employees is a critical issue to achieve new dynamic tension. How do we harness tacit knowledge, capture it, even recognize its value we need to encourage a continuous learning environment, we need to have clear organization learning strategies. Tacit knowledge helps us tackle the unknowns associated with discovery. The more we share, put effort into collaborative ventures the more we learn. The more we engage with external experts the more we should gain from these exchanges. Context becomes vital, as does striving for that common language and association.

6). Allowing time to explore and improve our human capital

Tacit knowledge as it becomes embedded in shared values, assumptions and beliefs you can qualify and map tacit knowledge. Our tacit knowledge increases the human capital. It can, through creative acts give strong feeling and give a real sense of commitment. The more we explore, the more we ‘ignite our passions’ but you need to consciously find the time to explore by clearing the path to allow the absorbing to take place and then extract the knowledge through putting any challenge into context, allowing time to access, anchor and diffuse.

The ability to harness our dynamics is vital

The ability to make our environments more dynamic, more engaging, more challenging, more a place to learn and contribute allows greater movement and potential for innovation and growth. A growth that is for the organization and its people, to provide all the different intellectual capitals to combine, be those human (knowledge, skills and experiences), relationship (social and through our networks) or through the structural ones you put into place (where you pool knowledge, use routines and systems).

Good use of our intellectual capitals and knowing what these are, does allow for a greater unlocking of innovation value. The more we ‘work and encourage’ our learning capitals, combining the power that lies in the dynamic linkages we can forge, in acquisition, in assimilation and then into eventual transformation then this allows known knowledge to become new wealth-generating innovation

The post Putting some dynamic tension into the system first appeared on Building Your Innovation & Ecosystem Intelligence.

We have an ongoing need to create, extend and modify resources constantly and to achieve this we need to orchestrate and enable those resources to exploit and execute our innovations.

We need to ‘asset orchestrate’.

One of our blind spots is perhaps the focus on pursuing and organizing around innovation just within an organization and not being as aware of all that is externally going on around us.

There are continued and rapid shifts taking place outside the walls of our organizations, constantly occurring and changing, often it becomes a ‘race’ between spotting an opportunity and executing on it before your competitors do, or the market further moves on and it becomes a lost opportunity to have exploited.

There is an awful lot of dynamics to consider and are we not just capturing the dynamics of the constant changes but ‘fit’ enough within our organizations to read and react to these in more dynamic ways.

Much of what an organization does is simply perform through its established routines, managing the passages that lead from one ‘event’ to the next. These form much of the activities, yet these should never be seen as the end, only the prelude.

We need to fully appreciate the complexities of all the interactions needed to make innovation more dynamic. That’s constantly changing and evolving and like a piece of music, it needs this conducting to be thoughtfully managed through the whole piece, the routines and the new understandings and interpretations.

To manage and orchestrate means to lead, frame, conduct and set the tempo.

The clear intent of any orchestration is the need to extract the underlying value. The person responsible, our conductor, is responsible for managing and searching for new innovations and they need to determine the path.

They need to coordinate and integrate all the activities, they need to draw out new learning, new interpretations of the knowledge collectively gathered and reconfigure it all, to deliver something different, fresh and new to the world.

When we begin to want to orchestrate across external innovation networks we not only need to know ourselves extremely well, we also need to know what others can bring and what is missing.

Networks and relationships, interactions and knowledge flow needs to be dynamic, they need to be somehow captured and translated, transformed and often reconfigured

Picking up the baton we need to pull together the different fragments
Asset orchestration has potentially a real value to appreciate and manage.

There is limited academic research into this but it becomes significantly richer in its importance when you tie it into dynamic capabilities.

Also as we increasingly need to understand the value creation in building our networks and relationships, the need for asset orchestration increases so as to build a pathway through gathering knowledge and what you can learn that leads you towards new innovation.

As our organizations become increasingly dependent on the specialization the coordination task becomes far more complex and difficult. We constantly need to search, select and configure our resources and capabilities.

Work undertaken to frame this asset orchestration was in different research by Sirmon et al during 2007 and 2008 that focused on the different actions of the manager, or asset orchestrator. They suggest there are three primary stages of structuring, bundling and leveraging resources for the purpose of creating new value for customers and gaining competitive advantages, however temporary in today’s world.

It is why this needs to be dynamic, ever-evolving, to keep orchestrating your assets continually. These three primary stages can be broken down:

• Structuring involves acquiring, accumulating and divesting resources to form the organization’s resource portfolio.

• Bundling of integrating resources to form capabilities, that can stabilize or provide incremental improvements to existing capabilities, or that enrich and extend existing current capabilities and thirdly, pioneer, which creates new capabilities.

• Leveraging involves a sequence of processes to exploit the organization’s capabilities to take advantage of specific market opportunities.
• This leveraging includes mobilizing, offering a clear plan or vision of needed capabilities, coordinating for ways to integrate these necessary capabilities and finally, deploying to achieve a resource advantage (or gain) that promotes market opportunities and instils more entrepreneurial strategies to exploit new resource configurations

We are all facing these needs for greater asset synchronization or orchestration.

We need to learn also that innovation needs this growing orchestration, due to this increasing move from firm-centric to network-centric innovation. In my understanding an orchestrator, they need to manage the tempo, know where and when to cue in the different players (learning) and inject the intensity into the performance.

We are dealing with managing the tempo, interpreting the different passages and movements as interactions become distinct, providing fresh value to build upon.

We need to learn to identify, assimilate and exploit far more than ever, the value of knowing your innovation fitness, your dynamics and the terrain you wish to traverse in new innovation activity becomes even more critical.

To create and to extract does clearly need to understand the what, why, where, when and how it needs to go about this.

The orchestrator needs to orchestrate.
To do this you must orchestrate the capabilities, to purposefully build what is needed to deliver the final result.

I have reconfigured my thinking around what will influence the evolution leading from internal innovation capabilities to a whole ‘network’ of these.

It still relies on how you purposefully build and conduct these capabilities and competencies. Orchestration is fundamentally dynamic, full of uncertainties but the need is still to connect the parts to deliver the right result.

Definitely, the dynamic view of orchestrating our assets is needed

Finally, orchestration has for me become very important to my ongoing work on the dynamic innovation capabilities for recognizing your innovation fitness landscape and the gaps.

These become even more of a challenge when different perspectives and competencies enter the mix, where we urgently need to understand the ‘dynamics of innovation’ even more.

We need to not just know the appropriate resources; we need to work on the skills, processes, routines, organizational structure and disciplines that enable firms to build, employ and orchestrate mostly our intangible assets relevant to satisfying customer needs and which cannot be replicated by competitors.

Assets that deliver the new innovation needed, through attracting collaboration efforts and integrating these into your own evolving resources and turning into being dynamic in nature.

The post Asset Orchestration is Required for more Dynamic Innovation first appeared on Building Your Innovation & Ecosystem Intelligence.

Let me offer some further thoughts on its value to really capture and understand, so we can measure it within our organizations.

We have the three components; of physical capital, knowledge capital and human capital that are the innovation-related assets, these make-up Innovation Capital.

I have been arguing that innovation capital draws from the core of intellectual capital and its suggested (and broadly recognized) components of human, structural and relational capitals or social capital.

I have previously discussed this converging up, as the ‘nesting effect’
Innovation capital needs assessing and measuring so we can understand the relationship between these innovation capitals (and their present and future potential) and organization performance. We need to know the innovation capital ‘stock’.

Why, well ‘stock’ can be ‘static’ and we need to make this more ‘dynamic’ so innovation can ‘flow’ from this constant renewing of our capitals and be transformed into new value.

Let me explain the innovation capital stock in (my) five parts

• It is a bundle of the firm’s resources and assets that renders complementary services in the process of new knowledge (innovation) creation and commercialization

• Innovation capital as renewal capabilities of our organizations in the form of producing intellectual properties that offer value and extracting from our intangible assets

• Innovation capital possesses attributes that make it a ‘strategic’ asset with the key lies in specifying the nature and application of these assets in relation to the new knowledge ‘flowing’ into the organization, for generating and commercializing concepts and ideas, into new forms of innovation

• The innovation capital is made up of the ‘dynamic interactions between the intangibles employed and the ongoing development of these intangible assets.

• It is the ‘effective use’ of all the different kinds of intangibles that contribute to the activity into innovation capital.

For me it is these tangible and many intangible assets that fire innovation, they make innovation combustible, to ‘spark’ new value creation.

Innovation will continue to struggle if we don’t understand its capital make-up.

If we don’t understand where the innovation value resides, we will certainly struggle to continue to build innovation’s position in the organization.

Today innovation is still regarded as ‘expendable’, sacrificed on the altar of short-termism.

This creates a growing uncertainty, often reducing innovation down as that no real ‘sense of urgency’ and becomes ‘contained’ in discrete projects, failing to offer that real, substantial, ongoing value for the enterprise.

We simply don’t ‘unlock’ the real value of innovation. If we lack the understanding and abilities to build this sustaining operational capacity for innovation we have ongoing problems.

There is the need as its longer-term goal, to be simply fully embedded inside the organization that it ‘resides’ and simply becomes indistinguishable, it becomes the operating core, constantly aligned to the strategic needs and goals. Innovation’s benefits must be outstanding and well understood.

Innovation will remain tentative, always stuttering along, lacking this absolutely organization innovation rhythm if it is not fully understood in where it generates it capital from and what new capital and stock it provides.

Actually, most of our innovation capital is learning capital.

The more we strengthen our knowledge and value our people, the more we can generate new knowledge, build greater narratives, deepen discussions, make better connections and build our interactions across growing communities.

The more we discover, the more knowledge we gain does lead up to determining potentially better decision-making and value-creating potential.

This should, in theory, give greater confidence, both internally and externally, that our invested financial capital is in good hands.

The power lies in the linkages we can forge, in the acquisition, in assimilation and then into eventual transformation, that allows known knowledge to become new wealth-generating innovation.

Our learning capital needs to emerge and dominate future discussions in improving its quality and value contribution. We need to increase incentives for organizations and their people to learn new things or update their existing knowledge.

We need to learn how to articulate knowledge in its acquisition, assimilation and transformation and that comes back to understanding absorptive capacity.

Managing organizational learning and innovation, more ICT is needed.

To successfully manage innovation capital and understand the make-up of the intellectual assets, the new main role of ICT is pulling together Web 2.0/3.0, collaborative technologies, social networking tools, wikis, internal blogging and knowledge capture, so as to help people share this growing body of knowledge through common platforms and electronic storage.

As our social networks expand they become a vital source of intellectual capital and innovation understanding. These relationships and networks need to be fostered, constantly measured in their value and contribution, and structured in ways to communicate and interpret outcomes for ‘directing’ future value creation.

The whole promising ‘wave’ of collective intelligence, social networking and building real useful communities of knowledge is a real challenge today to pull together. It is becoming a crucial factor and investing in the physical capital this needs, does allow for people to share knowledge through common platforms and strengthen the knowledge, with the human capital that innovation requires, to drive real growth.

For instance, EU investments in ICT’s are due to increase by about 25% under Horizon 2020 compared to FP7. This EU investment will support the whole chain from basic research to innovation that can deliver new business breakthroughs, often on the basis of emerging technologies.

We also need to recognize the work-to-be done, not work already done!

Work to be done is the need for our future growth and well-being to be derived through innovation activities. These so much made up of intangible parts will provide the new wealth of organizations in the knowledge sharing economy of today and the near future.

We need new forms of evaluation to measure the real asset wealth of the organization to understand the points of intensity, their connected dynamics and what is required to reconfigure the changing capabilities and capacities needed to grow in the future. There is a lot of work to be done out there.

Shifting our investments into today’s more valued capital- Innovation
It is how much we are able to adapt to fast-moving changes that will determine our success. It is the combination of the sum of our capital and knowing what factors and assets contribute to making our innovation capital that will determine the ‘health’ of our future.

I think it is essential going forward that we need significantly increase our innovation capital focus, so it can be fully unlocked, so as to release the true dynamics within the system and structures of our organizations to realize innovation’s potential.

For me, Innovation Capital and its make-up is where we need to focus, understand and invest. It drives our ability to create and sustain value creation.

The post Exploring the Value Of Your Innovation Capital first appeared on Building Your Innovation & Ecosystem Intelligence.

When you pause and consider the make-up of Innovation Capital you realize it makes such an economic contribution and in a report from McKinsey & Co, they have set about identifying this to produce the above summary, covering 16 countries, to understand the real value of this Innovation Capital.

These numbers are big and still don’t fully capture everything associated with innovation as much remains ‘hidden’ or ‘attached’ to other activities as well.
We need to shift our thinking on what makes up Innovation Capital

The shift taking place in recognizing that our capital is well beyond ‘just’ financial is rapidly altering organization investment decisions. The McKinsey approach has set about capturing a broader understanding of innovation than R&D alone.

Innovation and its value creation goes well beyond just R&D, it is made up of a broad range of intangible assets that are firm-specific and due to this, they are being recognized as hard to replicate, providing a growing edge over competitors if they are identified and invested in correctly.

In this report they considered the broader aspects of Innovation Capital capturing software, design, market research, training and new business processes as well as spending by governments and through tertiary education in science, technology, engineering and mathematics (STEM) subjects.

The value of this inclusive approach

By taking this inclusive approach to innovation spending they were suggesting allowed them to document better the investments underlying innovation, to see the greater “innovation infrastructure”

We are clearly seeing the continued increase in the valuations given to certain organizations, up to 80% of the value is coming from the intangibles, with the vast majority of our business organizations are really slow in getting to grips with identifying what is making up this value in their premium.

The urgency for us all, each organization, is to identify the investments and the returns as the innovation impact offered by McKinsey’s report is delivering a significant business case for understanding and recognizing the strategic importance of identifying and developing all your innovation capital.

Just go back and re-look at the graphic above for investing in Innovation Capital for its impact and implications for each of us.

Recognizing Innovation Capital is really important

So the make-up of innovation capital is big, I mean really big, this might help generate a greater innovation wake-up call. In a report from McKinsey and Co, called “Innovation matters: Reviving the growth engine” and first presented at the G8 leaders Innovation Conference, in London on 14 June 2013.

This report quantifies the importance of innovation in driving productivity growth and sets out the actions that governments and societies can take to build “Innovation Capital.”

The paper offered is stimulating the need for building the “innovation infrastructure” for our growth and as a key capability for our organizations and countries.

Where to start in specifically identifying Innovation Capital?

Within the McKinsey report they break down Innovation Capital into three components. These are:

Physical Capital is formed by investments in information and communication equipment (ICT) and across the countries analysed it represents 16 per cent of the Innovation Capital.

Knowledge Capital is formed by investments that build firms’ intellectual property and brand equity, including investments in computerized information, R&D and marketing investments, as well as relevant research in universities. It represents 60 per cent of Innovation Capital across the countries McKinsey analyzed.

Human Capital is formed by investments in building individual or organizational skills that drive productivity growth. This includes public and private investments in tertiary STEM education, employer-based training programmes and investments to develop organizational efficiencies (e.g., redesign of business processes or review of business models more broadly). Across countries analysed it represents 24 per cent of Innovation Capital.

It is important to recognize that McKinsey has captured and measured these to produce the impressive impact that innovation capital has. Is your organization identifying these for assessing their innovation capital? Most probably not.

Finding our innovation uniqueness

The make-up of our Innovation Capital are unique to each organization and highly valuable, I’d argue the report by McKinsey on its contribution is still significantly understated but a terrific step forward in attempting to quantify it.

It is the pivotal role of people as innovation carriers – their networks, collaborations, knowledge flows, interactions and tacit knowledge – and how innovation itself is a potent competitive force that drives productivity.

All this is often hidden in plain sight as our people are innovation’s active ingredient, the catalyst that turns novelty into real benefits.
Innovation capital is a big win if we can harness it well.

Save

The post Place Your Future Bets – Invest In Innovation Capital first appeared on Building Your Innovation & Ecosystem Intelligence.

We need to think about recognizing the ‘combining effects’ of four foundation pillars; of value creation (vc), business models (bm), intellectual capital assets (ica) and innovation capital (ic). It is the dynamics within the multiple combinations that will generate the future wealth creation we need.

We are in need of having a better understanding of the integrated value focal points of these four pillars combining, they need connecting so we can build the supporting structures and place the roof of need, our wealth creating one, to give us a new potential of harnessing our innate abilities to be creative. These four pillars offer perhaps a new core, a new transforming power, they make our activities connected and dynamic.

Unlocking all our potential is the job needing to be delivered upon

Our job today is to unlock the potentials from knowledge, harnessing our capitals to focus more on releasing our resources to work on their dynamic capabilities that combine vc + bm + ica + ic to make this a ‘room’ that gives us the potential to reside and generate new wealth potential.

A transforming one, where the make-up of value creation, articulated through business model designs by knowing the capitals that ‘feed into’ and build our stocks and flows for new innovation that does have the greater potential for wealth creation to occur.

The post Combining four foundation pillars. first appeared on Building Your Innovation & Ecosystem Intelligence.

Organizations have been focused for far too long around the importance of financial capital. It determines and drives organizations destinies. We are caught in a constant focus upon our achieving a return on our (financial) capital as our measuring criteria. Organizations strive for improving their ROCE, RONA, IRR,  EVA and a host of other financial measures.

As Clayton Christensen has been arguing the agenda of organizations begins and ends with the “search for numbers”. I think there is a time for changing this, we need to search for the knowledge that makes-up eventually the numbers.

There has been a distant voice for some time putting forward the need to appreciate and value the other capitals sitting within organizations. Much of the discussions have been housed under the term “intellectual capital” which denotes the sum of knowledge made up and contributed by our human assets, our organizational structures and our relationships that are developed.

These are the ‘capitals’ that transform into economic value through organization action. It is the financial capital that simply finances this.

Financial capital dominates any discussions

Yet financial capital and all its associated aspects rules, no, it utterly dominates. It totally fails to tell us in numbers alone where and what creates the value, it simply reports it.

It is this financial capital through our profit and loss, our balance sheets hides the value, or spreads it out in ways no one really understands its make-up.

Certainly those attempting to judge an organization just have to rely on a ‘history of numbers’ and some ‘selective’ market view to make investment judgements.

Equally those often running our organizations have a restricted view of where their real capital lies, as they focus on the numbers and then work down.

Today,we are  in a rapidly changing world and we need to understand it differently

The reliance of financial capital being the absolute measure is being challenged thankfully. Our business world is facing considerable disruptions from the accepted past practices, performance has become more volatile, more dynamic, more reliant on understanding that knowledge is where the value lies.

“Business as usual” is thankfully in a steep but protracted decline, the necessity today is to be constantly evolving and learning and that comes from knowledge acquisition, assimilation and then transforming and exploiting this into new value. We need to find new models for evaluating our real value and capital stock.

These ‘absorptive capacities’ are where we need to manage our knowledge flows better to translate and direct our understanding of new, value creating capital. We need to report on these far more as they offer the ‘residing’ and new stock that gives us new innovation potential and fresh value.

Learning capital needs to emerge and dominate future discussions

We need to give increasing incentives for organizations to learn. We need to judge the quality of this learning, not listen to ‘bland’ statements often presented. We need to know where this knowledge is targeted in narrative, discussions, spillovers and interactions.

What is being exploited, what is being determined in the decision-making process to give greater confidence that our invested financial capital is “in good hands”.

Keeping reliant on just discussing the financials within organizations we know is not enough. We have to force better discussions on the make-up of the other capitals, as these are still poor, left to individual interpretation and variable and we need to change this.

We are increasing opening up

As organizations become more open (open innovation for instance) the strength of linkages, of knowledge exchange, the translation of these activities is becoming really valuable to understand and focus upon more.

Through many of our activities we actually ‘borrow’ and it is then the ‘dynamic linking’ that we bring into the process, gives up the increased potential of innovation. It is the ease of learning, the ability to acquire and apply knowledge that creates the potential for innovation.

How many organizations really articulate their knowledge capital in acquisition, assimilation and transformation? Do we know how ‘path dependent’ they are- are they lagging in the market, are they simply opportunistic, are they locked-in far too much in potential downside risks.

Do they suffer from cognitive failure, do they lack the appropriate competencies to meet the constant challenges occurring around them. How much of this can you really extract from cold, hard numbers? Not a great deal.

Recognizing where our true value resides

The real problem we have is the lack of appreciation of what makes up our value, the real underlying wealth creating value, the one that truly ‘generates’. The tangible part is easier to appreciate (plant, land, material etc.) but is becoming a significantly declining part of the total sum of value of our organizations- sometimes it is only making up 30 percent..

It is our difficulties of understanding the intangibles as it is a very challenging task. Yet this has huge implications on the ‘health’ of the organizations we continue to invest in. Most organizations resort to “inferring” the value. This needs to change. The value today is in the interactions between the different components that make up our intangibles, out intellectual capital.

We are in need to identify what ‘drives’ organizations and that is our knowledge stock

For gaining and sustaining real advantage, and showing why it has the potential for creating new wealth we need to understand our capital stock.

This needs to be far more forwards looking; it needs to be more open and more transparent and it needs to ‘flow through’ the organization to find the potential to find new value from innovation. The call is growing increasingly for a new valuation model.

Static knowledge where we view financial numbers, never take our knowledge beyond what we are reading, failing to connect it and advance it is just not good enough, we do need to understand the underlying dynamic capabilities that make-up the organization. We need to access, absorb and translate our knowledge stock, allow it to flow and be developed into greater value-adding stock and innovation outcomes.

The post Struggling with counting ALL the sums of our capital first appeared on Building Your Innovation & Ecosystem Intelligence.

Today, it is the non-financial performance, made up of mostly the intangibles within organizations, that is accounting for upwards of 80% of present investors’ valuation of our organizations.

Yet do shareholders really have the knowledge to judge the real source of value creation inside our organizations? I think not but they should. Does Management actually?

We lack a real line of sight into the true value of our organizations that make them dynamic

There is a pressing need to connect the real sources of value creation and these come from all our capitals and bring this clearly into the ‘line of sight’ of the management itself within our business organizations,  as well as the shareholders.

There is this chronic lack of real understanding of where the true value does come from or if it is known, given the public recognition it deserves beyond the usual “oh, its in the business model”or similar assumption- what is? Where does real value lie?

Lets begin with the make up of all our capitals, it is way beyond just financial

Often when you begin to talk of capital, automatically the financials come to mind. The financial decisions and results are an outcome from our ability to leverage all the other capitals making up our organizations. Most of these are intangibles and you often get that glazed look and the standard reply “intangibles are difficult to measure”.

Yet they really do need to be effectively measured and understood. They need to be really understood to know where the value creation potential does actually lie. Knowing the values of these can determine the gaps that need plugging and the potential that can be leveraged in what you have available to you.

Understanding ALL the capitals within our organizations is essential

Thankfully understanding our capitals, beyond the financials, has been a work-in-progress for many years, we know more about it yet it still remains grossly understated within any of the reporting mechanisms organizations make.

The need to make our intangibles that remain invisible on our present balance sheets has to be addressed. These are ones that make up

1) the internal structures, processes, routines, databases that contribute to the structural capitals ,

2) the external structures where external relationships, networks and customer capital contribute into the make-up of relationship capitals, and

3) the competences that include individual experiences, knowledge, competences, skills, capacity to learn, the absorbing and translating of an idea that all build and contribute to the human capital aspects of our organizations.

Turning the intangible light switch on is becoming essential

Management is still groping in the dark on measuring its intangibles, yet there is this pressing need to find the light switch and through the spotlights on the understanding on all the intangibles that make up our organizations, be these ones regarded as the classics of human, relationship and structured capital.

We need to explore many dynamic factors that have a substantial impact potential for our business.

How often do you hear thoughtful and coherent explanations of market positions, besides the market ranking, the depth in management experience?

Or the understanding of the quality and ongoing upgrading of major processes that are not generic statements but factual and measurement driven?

Or the progress made in research leadership beyond the top-level picture of “areas of focus” so you can truly assess the innovation pipeline and its potential impact beyond the immediate?

We are rapidly moving from physical to knowledge based, often in a real need to build very intellectual based enterprises and knowing where the real value lies is becoming absolutely essential to understand.

This will require a significant shift in existing managerial mindsets. Managing our ‘range of capitals’ is essential to do.

We should seek a better visibility into our organizations

Better outcomes and a greater relationship between investors and the organization needs to be achieved. I think it is possible but it is a journey many today are reluctant to travel. They should.

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There is a growing need for having some dynamic tensions within the organization’s system; these helps generate the better conditions for innovation to thrive. We are learning more on the better tools, techniques and approaches available for putting the learning tensions into our work, making them more dynamic, linked and increasingly relevant to the work to be done.

1). A common language is essential

Any dynamics in the system needs that ability to talk the same language, something that becomes common and embedded to support the routines and move quicker to the concepts and solutions, as others can ‘understand’ them as well. It is through working on the inner stories and appreciating the history, it is having an appreciation of events, good and bad, it is through local slogans, your jargon and dialogues that bring people together. The power of storytelling helps gain adoption and identification to those needs for working on a common cause.

2). Creating constant opportunities for conversations

So many organizations don’t work on the ongoing conversations, design workshops, road shows and dialogue sessions that give everyone linkage and growing identification. You begin to identify your sense of purpose and value contribution if there is a consistent diffusion of messages; these should be always lead from the top or moved up and down the organization to allow for these ongoing conversations.

3). Using the knowledge that resides

Organizations like to believe they are building domains of expertise but often they are actually building the silo’s to restrict the flow of knowledge. Knowing where the right functional expertise lies, the relevant skills, experiences or relevant insights ‘reside’ is increasingly important to throw open to all, to tap into, extract and contribute. This expertise can help with our daily routines by offering different thoughts, ideas and practices that may have a real impact on how you can change.

4). Wrapping up intelligence to give it real value and knowledge understanding

The bundling of intelligence is becoming critical. It needs to be increasingly shared across the organization at real time speed. As we look increasingly outside our organizations, our focal markets sensing and seizing the information and being able to connect it, to bundle it into knowledge that has potential application or relevance allows for absorptive capacities to really come to live. Those are able to learn to bring into the organization by accessing, anchoring and diffusing that external capacity for creating and exploiting new value.

5). Capturing and extracting tacit knowledge

Our ability to capture and access the tacit knowledge that resides in all our employees is a critical issue to achieve new dynamic tension. How do we harness tacit knowledge, capture it, even recognize its value we need to encourage a continuous learning environment, we need to have clear organization learning strategies. Tacit knowledge helps us tackle the unknowns associated with discovery. The more we share, put effort into collaborative ventures the more we learn. The more we engage with external experts the more we should gain from these exchanges. Context becomes vital, as does striving for that common language and association.

6). Allowing time to explore and improve our human capital

Tacit knowledge as it becomes embedded in shared values, assumptions and beliefs you can qualify and map tacit knowledge. Our tacit knowledge increases the human capital. It can, through creative acts give strong feeling and give a real sense of commitment. The more we explore, the more we ‘ignite our passions’ but you need to consciously find the time to explore by clearing the path to allow the absorbing to take place and then extract the knowledge through putting any challenge into context, allowing time to access, anchor and diffuse.

The ability to harness our dynamics is vital

The ability to make our environments more dynamic, more engaging, more challenging, more a place to learn and contribute allows greater movement and potential for innovation and growth. A growth that is for the organization and its people, to provide all the different intellectual capitals to combine, be those human (knowledge, skills and experiences), relationship (social and through our networks) or through the structural ones you put into place (where you pool knowledge, use routines and systems).

Good use of our intellectual capitals and knowing what these are, does allow for a greater unlocking of innovation value. The more we ‘work and encourage’ our learning capitals, combining the power that lies in the dynamic linkages we can forge, in acquisition, in assimilation and then into eventual transformation then this allows known knowledge to become new wealth-generating innovation

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These capitals when combined ‘fire’ innovation, they make it combustible and change our thinking from the known into the preferred from this ‘set of reactions’ that form new and better innovation solutions

What we need is to recognize is the real “nesting effect” of all our capitals. They make innovation dynamic!

Each of our capitals performs a particular function and the overhaul make-up of their understanding becomes our eventual code to perform innovation. Each organizations uses it mix of capitals to accomplish and generate innovation. It is in this mixture of combinations brought together constantly in different ways, then this ‘nested effect’ for innovation occurs.

The capital you ‘bring to bare’ will generate the potential new innovation outcomes, or by recognizing certain capitals are missing, will highlight the gaps and gives real clues on where and why innovation is repeatedly falling down and that is the value of knowing the total make-up of all your intellectual capitals. They can make or break innovation.

Organizations miss the power to consistently tap into all the potential that ‘resides’ or could be added to make innovation happen. This comes from the unique set of capitals that offers the real potential to set each organization apart from others, it gives them the wealth-generating potential, their uniqueness and ‘chance’ to be seen as future valued.

We need to know where our value creation resides – it is nested in our organizations.

By recognizing our ‘stock’ and knowledge flows through exploring and investing in our group of capitals we have that greater chance of value-creation. We need to move away from the bias of one capital, financial, it is not the dominating one in today’s world, it is our knowledge generating capital, those that ‘capture’ the true story of appreciating if one organization has future investment value or not, by the outcomes they generate.

So what makes up our capitals?   

Firstly let me offer my definition of what is innovation capital

“Innovation capital is the sum of all that promotes the development and changes required for achieving innovation outcomes, within one organization or its broader networked environment for market place advantage. These are made up of the resources, processes, and capabilities to develop a constantly evolving capacity to innovate.”

Most of our capitals are learning capitals. So how are you ‘firing’ up your capitals today?

The post All the capitals ‘fire’ innovation so as to make it combustible. first appeared on Building Your Innovation & Ecosystem Intelligence.