The concept of intellectual capital is rapidly becoming an important asset for most companies, although it often goes unrecognized. Unfortunately, the phrase "intellectual capital" has a vagueness about it that makes it difficult to define or quantify, let alone manage.

Recently, I came across the following simple, yet useful definition: intellectual capital equals the product of competence and commitment.

A necessary balance. Neither element is sufficient in or of itself. Competence without commitment is often directed away from an organization's goals. Commitment without competence will frequently produce sub-optimized products. However, when competence and commitment are considered together, they can provide a useful paradigm for dealing with intellectual capital.

Management must recognize that with the increasing emphasis on knowledge work, intellectual capital is rapidly becoming a vital, but often neglected concept. Management should resolve to give it some priority.

The question is, how can management assure that their firms' intellectual capital will continue to grow, and not depreciate over time?

The intellectual capital paradigm requires:

1. A common vision or strategy that everyone can support.

2. An encouraging culture free from micro-managing, which provides meaningful and challenging work that enables employees to increase their competence.

3. Open communications.

4. Shared gains.

Develop competencies. Competencies, whether they be technical or management, must first support the business strategy. To do this, most managers use some combination of the following:

1. Replace the less-qualified performers with people who are more qualified. This is not an easy task, especially when the labor market is tight. Also, there is a risk that the new person will not perform as well as the person replaced, since "the grass often looks greener on the other side of the fence." Such action also risks alienating the good performers who were not terminated.

2. Invest in the current workforce to make it stronger by concentrating on activities that will help employees learn new technical and management skills that will increase the organization's intellectual capital.

3. Contract out what cannot be done efficiently or effectively in-house, or use a consultant who has the competence.

Many firms, especially those in high-tech businesses, tend to focus almost entirely on the competence dimension in an effort to increase their intellectual capital. They tend to ignore tools for the creation and maintenance of commitment. This they relegate to the category of "soft stuff," which they believe has little to contribute to a hard-hitting, fast-moving organization.

However, today's businesses also need committed employees who are involved emotionally as well as intellectually if the business is to continue successfully.

Ask the Manager

Q As I read and learn about improving U.S. competitiveness, two opposing positions seem to pop out. One relates to downsizing or laying off as many people as you can. The other says competitiveness requires a knowledgeable and dedicated workforce. How do you reconcile these seemingly opposing views?

A The answer is to try to do both. That is, try to build a strong, dedicated workforce while at the same time trying to keep costs competitive. The problem is that, until recently, many firms were able to operate on a cost-plus basis without a lot of competition. Now, competition, and improving technology, is forcing companies to design to the price customers are able, and willing, to pay. And, at the same time, they must also be more flexible and produce in shorter time schedules. Operating in such an environment makes reorganizing and downsizing to produce the same product a must. Large, inflexible, and inefficient organizations can no longer be tolerated. They are going the way of the dinosaur. At the same time, high employee skills, lifelong learning, teamwork, employee empowerment, and employee involvement are all essential elements for a firm to be competitive. The virtual corporation may be the answer. Such an operation would have a core of owners and managers and technological skills. Then other workers would be hired temporarily, on short-term contracts, or provided by another contractor or vendor. This gives the corporation flexibility in terms of how it does its business, while it provides a range of opportunities to those workers who keep up with their fields and remain productive. Much like the free-agent system in baseball or football, this approach requires a whole new mindset, but it is in our future.