intellectual capital, human capital, new business model

Guru after guru has pronounced that capital, labour and raw materials are no longer the key resources. Knowledge and information have taken over. The new kind of company is built round information flows and the mobilisation of the knowledge resource in every corner of the organisation. IT transforms the data that every corporation collects into a knowledge powerhouse, a unique source of competitive advantage.

The mighty force of these developments is so obvious that the 'information society' has become a truism. But behind the clichés about the knowledge economy, knowledge company and knowledge worker lies the reality that is reshaping the world - above all that of business. In his book, Intellectual Capital, rightly sub-titled 'The New Wealth of Nations', Thomas Stewart writes of 'the end of management as we know it'. He delineates accurately how management must change in order to manage, not one, but three varieties of intellectual capital.

'Human capital', which consists of individuals' mental powers and resources, is the most widely understood of the trio. But 'structural capital', the accumulated knowledge and know-how of the organisation, is at least as important. The third form of capital, 'customer knowledge', is the most difficult to pin down. As Stewart says, it is 'probably...the worst managed of all intangible assets'. Clearly, you cannot afford to mismanage any of the three varieties. To manage them well, however, requires what we call The New Business Model.

This once-and-future model is essentially simple. It contains only four elements. Used to help app ly new technology, it is the antidote to unnecessary complexity and provides necessary consistency and stability.The elements are:

• strategic direction and vision (human capital)
• customer focus (customer knowledge)
• products and processes (structural capital)....
...which together form the fourth element.....
• culture

All four elements revolve around the core of app lied technology. Its use can generate 'killer apps' from any of the four. Some apps will produce significant improvement rather than sweeping reform. But the latter is the ultimate objective: the killer application that not only leads to transformation of the killer company, but transforms the entire industry in which it operates. Once a company sees what can be done with the first apps, it can see and seize the 'killer opp': the killer opportunity to reposition itself and win sustainable competitive advantage in a world of ferment and constant change.

Steve Merry, European director of IT for Kodak, says of 'killer app' that 'It sounds dreadful! It sounds as though you are going to attack somebody, but it is actually well-named, because that is what we are using them to do'. Kodak is among the early users of the killer apps process which The Leading Change Partnership has developed for British Telecom and its customers. The development grew out of two much-repeated events, named 'Winning Market Acceptance' and 'Riding the Revolution', at which respectively BT personnel and their customers are introduced to the rich opportunites of IP technology.

These seminars, respectively a day and two hours long, lay the foundations for the Partnership Approach, in which BT and the customer work together to exploit those abundant opportunities. The whole programme is a demonstration of knowledge management. The combined knowledge and know-how of the customer, BT and ourselves is app lied to products and processes to find successful uses of IP technology. That route has to satisfy two essential criteria: speed and simplicity, which go hand-in-hand.

The traditional broad-band app roach to IT systems is too bureaucratic and consumes too much time (and too many consultants and too much money). If you have to think about the application for too long, and then spend seemingly endless months in preparation before delivery, you will proably miss the killer opportunity. In vital contrast, the companies that have been first to take new technologies into the internal or external marketplace over the past decade have often won a clear and great advantage - and nobody else has ever been able to catch up.

INDUSTRY TRANSFORMATION
Amazon.com is a clear case of industry transformation produced by the killing application of existing technology. Its success, like the killer approach as a whole, is not about inventing some wonderful new technical advance. All the technology that will be used for the next generation of murderous applications is almost certainly already in place. The name of the Amazon game is to exploit what is already there in terms of capability - and then get to market more speedily than the opposition.

Our killer apps programme is therefore founded firmly on a key principle: that the application of IP technology is a strategic issue which must be led by business, not technology. By definition, a killer app achieves and sustains sharper competitive edge, increased revenues, higher margins and/or expanded market share. We believe further that senior managers need practical help, not months of strategic studies followed by expensive consultancy solutions. The better objective, surely, is to deliver benefits quickly by using the skills and experience of the people in the company.

The business framework and implementation process are also simple. If the customer is not already wired up, start by going on-line with a standard, inexpensive, effective system: we helped to develop BT's Freedom product for precisely this purpose. Then, after a two-hour customer briefing (of which Riding the Revolution is an example), we stage a half-day Killer Applications Workshop (KAW). This takes the management team through its business needs and the ways in which IP applications can meet those requirements. Initially, the workshop is likely to concentrate on 'building blocks', standardised BT applications, which can be applied step-by-step to provide experience, success and a highway to business transformation. The standard products include:

• the real time information system
• the real time supply chain
• the customer loyalty programme
• the direct-to-market model

A real time information system seeks to eliminate the costly waste caused by inaccuracy and poor availability of information. The waste in money terms runs at anything up to 40% of the cost base of the business. Giving people the information they need when they need it significantly reduces this hidden, needless and harmful expense. It also creates opportunity. Access to information is among the most powerful weapons in Microsoft's armoury, for example. Thus Bill Gates sings the praises of a central web location called InSite:

'At the end of each consultancy engagement we require a Microsoft consultant to post technology solutions [to Insite] for the benefit of other technical employees, and we evangelise the use of InSite to reduce preparation time and risk in consulting engagements'.

An InSite-type solution is not at all taxing in either concept, provision or cost. Giving people what they need when they need it is also the secret of the real time supply chain. The process of speeding up supply is one of streamlining, eliminating unnecessary stages and also cutting out waiting time while documentation is processed. Many businesses take for granted their long lead-times, like needing a whole year to get fashions into a large store chain. The Killer Apps Workshop takes nothing for granted - particularly not so long and risky a delay.

The building blocks of applications obviously must be aligned with the strategic direction and vision. These can only stem from a senior management which provides clear guidance in a simple mission statement and slogan that everyone in the organisation can understand and find relevant. The typical mission statement fails on these criteria and sounds much like anybody else's: viz, 'to be recognized as the leading supplier of [whatever], continuously improving our products and services to meet customer requirements'.

THE GATES VISION
Gates's long-standing vision - 'a computer on every desk and in every home, running Microsoft software' - is far superior; clear and concise and hard-nosed. It was not improved by the later omission, presumably on public relations grounds, of the last three words: 'running Microsoft software'. The original statement, and any mission statement worth the paper on which it is written, answers the question famously posed by Harvard's Ted Levitt: What business are we in? The next logical questions are: What do we need to be good at? Where must the organisation excel to achieve its business objectives?

One critical answer is the same for all companies. You have to excel at retaining existing customers and attracting new ones. Without customers, after all, there is no business. The power of customer process, however, has been transformed by IP technology. As Kodak's Steve Merry says, however:

'It is very simple to communicate and to transmit data very quickly, and capture and keep a customer - and that's what we are trying to do'.

For example, effective use of the new technology will easily accomplish an essential task that many companies today find hard-to-impossible: getting a breakdown of where the company really earns its revenues. The 80/20 rule invariably applies: that is, a small proportion of the customers will account for the bulk of the revenues and profits. IT will quickly tell you which customers are among the significant few or the insignificant many. Equally important, the technology than enables you to turn the critical relationships into permanent assets.

At Advance International Group, chief executive Tony Belisario found one of his companies earning 93% of revenues from only nine customers. Mike Peacock, the quality director, followed up this information by using IP technology. It enables Advance to share information with the nine key customers, saving time and improving communication for both parties. The system simultaneously develops and strengthens customer loyalty: it will take a very severe failure to break the bonds created by jointly installing browser-based information systems that are simple and effective in use.

Shared information systems are vastly superior to customer surveys when it comes to achieving customer satisfaction and loyalty. The shared system over the Internet provides continuous, direct communication and two-way contact in a way that no other technology can match. You share key information on-line with your customers, working together to develop the Web pages. The feedback is built into your operations and those of the customer. You can far more easily achieve the perceived 'excellence' of service which provides so great an advantage, even over competitors whose rating is 'good'.

BT's experience with Kodak in Europe illustrates the power of the killer apps approach. Like many other organisations, the company is going through a revolution in the types of product it makes and markets, in this case particularly in the digital arena. The revolution requires a wholly different way of selling products and dealing with end-users. The issue was how IP technology could help in resolving the many issues created by strategic upheaval on this scale. The programme started from a sensible app reciation of where to start. To quote Steve Merry:

'One of the difficulties with what people are calling Internet trading...is that senior management, if I'm being really honest, are not so good and well educated at these things. There are a lot of people who don't understand it, and that's the bottom line'.

Failures in IT have burnt the fingers of many managers, some of whom remain sceptical about investing in IT. Kodak's people, though, were determined to educate management about the IP opportunities. Considerable effort was required. Just assembling the busy regional business unit managers from across Europe was a major exercise. The briefing, however, convinced managers that the killer apps approach was the best suited to Kodak's needs for speed and directness. So the company moved on to the next stage: the Killer Applications Workshop.

This session developed a long 'want' list from discussions with the Kodak managers. BT's Chris Downing and Paul Spenley then demonstrated some simple answers, applications that got to the customer quickly and promised to generate new business, growth and profits. Several examples of successful uses of killer apps were shown: 'they were so damned obvious!', was one comment. To express that another way, 'what was possible with this new medium...was an amazing revelation to us'. For example, digital products are typically high-value items with a six to nine-month life-cycle. One such Kodak product had reached the end of its life: an ad on the Web sold 400 units within two to three hours.

KILLING WITH A KAIT
Turning a want-list like Kodak's into working applications is the task of the Killer Apps Implementation Team, the KAIT. The team, which tackles a specific app, is multi-disciplinary and multi-level. BT experts participate with the customer's staff, who thus understand the impact of the changes and take full ownership of the project. It is a genuine partnership. We define that as a shared commitment to the continuous identification and achievement of business benefits afforded by the killer applications which are unique to the Internet revolution. Creating a working partnership has four stages:

• Who are they? Who are the senior managers who will take responsibility for applying Internet technology to achieve business benefits?

• What are they like? Who are the visionaries who will enthusiastically adopt the new? Who the pragmatists who want proof that it works? Who the conservatives who oppose change? The task is then to build the leadership position through the visionaries: they will convince the pragmatists who in turn shift the conservatives.

• What do they need? What product features and functionality? What service quality? What business benefits? What killer apps can deliver the business benefits in a fast timescale?

With these questions resolved, the Partnership Approach provides the continuous relationship which is vital to developing and maintaining customer loyalty. It turns strategic direction and vision into strong customer focus by developing products and processes in shared ways which, by the very act of sharing, start to develop the revolutionary culture demanded by the Age of the Internet. Intellectual capital, in both the structural and human forms, comes together with customer knowledge. It is a winning combination.