Theme article from the web site for Management Quality : www.inutsikt.se

MANAGEMENT QUALITY AND INTELLECTUAL CAPITAL

"Knowledge organizations" is a collective name for all those enterprises whose main value consists of the competence of their employees. (The word competence is used here in a very broad sense.) A simplified and somewhat crude way to distinguish knowledge organizations from corporations with assets in land, facilities, products in stock and in production, is by saying that "the balance sheet leaves at the end of each working day".
In all economies the number of knowledge organizations is increasing; so is our knowledge about their special conditions. Even in enterprises that produce trucks or breakfast cereals a larger number of employees are dealing mainly with knowledge. Their job titles are process developers, market strategists, IT specialists and so on. The terminology used here comes from the business sector but the conclusions are equally valid for central or local government.
What is the true value of a knowledge organization and how can it be determined? That is a crucial question for an investor before an acquisition, a fusion or a merger. Knowledge itself is intangible though we can clearly observe it in work. Further most knowledge gets obsolete with time - and disappears completely if skilled employees choose to leave the organization. Many executives have bitterly realized this fact, as they see a group of consultants, publicity professionals or accountants leave their organizations together with many valuable customers or clients.
The term "intellectual capital" has been coined to describe an organization worth more than its material assets. Some people mean that the intellectual capital of a public company equals the stock value minus tangible assets. This is if course an oversimplification. The stock value fluctuates for many other reasons (such as exchange rates, interest rates or speculations of war).

Financial models generally state that the true value of an enterprise (not necessarily the value of its stock) is the sum of financial assets and intellectual assets. The intellectual assets, or intellectual capital, consist of human resource capital and structure capital. The latter includes organizational capital, which in its turn includes process capital.
These four terms: human resource capital, structure capital, organization capital and process capital are all relevant when we speak of management quality - and vice versa. Management quality covers management policy, management systems, management programs and management processes, and is implemented by human resources: managers and staff.

To compensate for the risks inherent in running a knowledge organization, owners and management frequently try to replace human resource capital by structure capital. Consulting organizations build large, IT based experience banks in order to be less vulnerable in case key individuals leave; in addition it becomes easier to train and develop new consultants. If George is the only person able to run and control the last non-automated process, it is obviously vital to document the procedures and define a training path for any new employee who may have to step in and take responsibility for the process. Becoming less dependent on key individuals is the road to continuously being able to deliver top quality products and services.

This same road leads towards a consistent, high quality of management. Excellent leadership across the organization must not depend on a single person or a few persons, however professional or charismatic in their roles. The quality must be maintained in spite of unavoidable shifts of key persons. Nor should excellent leadership be defined out of the preferences of one single person or individually by each manager - with potential risks for U-turns at each organizational change. Management quality assurance must include methods and programs that guarantee the management quality of tomorrow and day after tomorrow. It is not sufficient to record a satisfactory situation at one specific point in time.

The traditional view of leadership and of management development is focused on the individual, the manager. There are thousands of "wish lists" describing the superman or superwoman needed to fill a management position, but very few recipes on how an organization, as a whole, should work in order to be assured of excellent management quality in all places and at all levels of the organization. The traditional view results in a leadership dependent on one or a few persons and a management quality across the organization that may deteriorate rapidly.

Management quality is an organizational concept. It describes the capacity of the total organization. As it covers management policy, management systems, management programs and management processes it also satisfies the requirement of quality assurance.
Management quality is structure capital. It should not be seen as an alternative to human resource capital (in management). When you invest in establishment or improvement of programs and processes such as management supply, introduction of new managers, management development, development of management teams, etc. all managers and all staff share the benefits. This kind of investment results in increased structure capital as well as human resource capital.

An ambitious project to improve management quality will lead to:

•  Increased intellectual capital, through

•  Increased structure capital, and

•  Positive impact on human resource capital: competence, participation, motivation, efficiency etc.

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